THE  LIBRARY 

OF 

THE  UNIVERSITY 
OF  CALIFORNIA 

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TJni"*ra.11;y  of  California 

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PRACTICAL  ACCOUNTING 

FOR 

GENERAL  CONTRACTORS 


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PRACTICAL  ACCOUNTING 

FOR 

GENERAL  CONTRACTORS 


BY 
H.  D.  GRANT 


STAFF    OF    W.    B.    RICHARDS    *    CO.,   ACCOUNTANTS    AND    ENGINEERS 
FORMERLY    WITH   THE    AMERICAN   WOOLEN   CO.;  OFFICE    MANAGER  FOR   KUNHARDT    4 

STOCKTON;  AUDITOR,  HUDSON  &  MANHATTAN  RAILROAD  co. ;  TREASURER 

L.    K.    COMSTOCK   &    CO.,   ELECTRICAL.   ENGINEERS   AND  CONTRACTORS; 
FIELD   AUDITOR   FOR  THE    UNITED   STATES    GOVERNMENT 


FIRST  EDITION 


McGRAW-HILL  BOOK  COMPANY,  INC. 
NEW  YORK:  370  SEVENTH  AVENUE 

LONDON:  6&  8  BOUVERIE  ST.,  E.  C.  4 
1922 

400G5 


COPYRIGHT,  1922,  BY  THE 
MCGRAW-HILL  BOOK  COMPANY,  INC. 


MAPI,*!     -PKE88     Y  O  H  K    PA 


Bus.  Admfn. 
Library 

\4F 
5GSG 

CG5  G-1 

PREFACE 

There  are  many  excellent  text  books  on  general  account- 
ing and  every  manufacturing  industry  of  any  size  and 
complexity  has  an  accounting  literature  of  its  own.  But 
little  if  anything  of  a  comprehensive  nature  has  been  written 
about  a  system  of  accounting  to  fit  the  needs  of  the  con- 
tractor. This  lack  is  the  more  noteworthy  for  two  reasons : 
First,  practically  all  building  and  construction  work  is 
carried  out  by  estimate  and  contract  and  the  size  and 
importance  of  the  business  are  self-evident;  secondly,  the 
basis  of  accuracy  in  estimating  depends  upon  accurate 
records  and  therefore  the  contractor  even  more  than  the 
manufacturer  needs  all  the  help  that  is  to  be  obtained 
from  a  complete  system  of  accounts. 

The  need  for  a  comprehensive  work  on  accounting  for 
contractors  was  brought  home  to  the  author  some  years 
ago  when  engaged  to  take  charge  of  the  accounting  depart- 
ment of  a  large  contracting  concern.  The  faults  of  the 
system  of  records  in  use  were  many  and  glaring;  the  remedy 
had  to  be  devised  to  fit  the  needs  of  the  case.  After  a 
period  of  close  observation  and  experiment  a  system  of 
accounts  and  accounting  control  was  evolved  which  ful- 
filled the  essential  requirements  by  giving  the  contractor 
the  information  he  required  for  the  management  of  his 
business  promptly  and  at  a  time  when  he  could  make  use  of 
it.  This  book  in  part  contains  a  description  of  the  system 
to  which  is  added  a  discussion  of  the  methods  and  account- 
ing practice  that  have  become  the  standard  practice  in 
those  contracting  businesses  where  adequate  records  are 
kept. 

The  author  wishes  to  acknowledge  his  indebtedness  and 
express  his  gratitude  to  L.  K.  Comstock,  an  engineer  and 


vi  PREFACE 

contractor  of  wide  experience,  whose  technical  knowledge 
has  been  generously  placed  at  the  writer's  disposal.  Mr. 
Comstock's  criticism  and  explanation  of  technical  matters 
has  been  invaluable  as  an  aid  in  making  this  book  what  it 
purports  to  be — a  practical  tool  for  the  management  of  the 
contractor's  business. 

Acknowledgment  is  also  made  to  Mr.  Rindfoos  for  his 
courtesy  in  allowing  the  privilege  of  reproducing  various 
forms  of  contractual  agreements  made  between  the  owner 
and  contractor,  which  were  taken  from  one  of  his  books. 

H.  D.  GRANT. 

BROOKLYN,  N.  Y., 
May,  1922. 


CONTENTS 
PART  I 

PAGE 

CHAPTER  I. — REQUIREMENTS  FOR  SUCCESSFUL,  OPERATION  ....       1 
Necessity  for  an   accounting  system — Cost  accounting  require- 
ments,   3 — Construction   contracts,    4 — Importance  of   adequate 
control,  5 — Importance  of  working  capital,  6. 

CHAPTER  II. — TYPES  OF  CONSTRUCTION  CONTRACTS 9 

Introduction — General  contractor  and  his  duties — Sub-contrac- 
tors, 10 — Lump  sum  contracts,  11 — Upset  limit  contracts,  14 — 
Time  and  material  contracts,  15 — Fixed  fee  contracts,  17 — Unit 
price  contracts,  19 — Jobbing  work. 

CHAPTER  III. — COST  PLUS  CONTRACTS 21 

Methods  of  financing — Interest  on  capital  investment,  24 — Illus- 
tration of  cost  plus  operation — Material  supplied  from  contractors 
stock,  25 — Pricing  contractor's  materials — Effect  of  Rising  Prices, 
27 — Equitable  adjustment  of  Percentage  Rate,  28. 

CHAPTER  IV. — THE  FINANCIAL  ACCOUNTS  AND  RECORDS  ....  31 
General  journal,  32 — Auxiliary  records,  35 — Cash  record,  35 — 
Method  of  proving  balances,  38 — Control  figures,  40 — Accounts 
receivable  ledger,  45 — Accounts  receivable  ledger  other  than  lump 
sum  contracts,  47 — Accounts  payable  ledger,  49 — Filing  original 
papers,  50 — Schedule  of  unfinished  contracts — Cost  to  complete 
unfinished  contracts,  52 — State  cost  and  income  abstract,  53. 

CHAPTER  V.— FIGURE  ANALYSIS  BOOK 56 

Chart  of  accounts — Sections  of  figure  analysis  book,  58 — Distribu- 
tion of  Vendors'  invoices,  59 — Charginglmaterial  to  contracts,  61 — 
Accounts  payable  control  figures,  63 — Labor  and  expense  charge- 
able to  contracts,  64 — Jobbing  section,  65 — Overhead  or  general 
expense,  67 — Analysis  of  store  room  orders  and  transfers,  69 — 
Unearned  contract  sales,  70 — Consolidated  journal  entry  of  con- 
trol figures,  71 — Inventory  of  unbilled  costs,  73. 

CHAPTER  VI. — HANDLING  PURCHASE  AND  STORE-ROOM  ORDERS.    .     77 
Source  of  charges,    77 — Issuance   of   purchase  orders — Checking 
invoices,   78 — Method    of    recording   sub-contracts,  79 — Transfer 
tickets,  83 — Time  sheets  and  foremen's  reports — Record  of  purchase 
prices,  85 — Methods  of  filing  records — Handling  expense  items,  87. 


viii  CONTENTS 

PAGE 

CHAPTER  VII. — RECORDING  INCOME  AND  EXPENSE 90 

Billing  sales — Lump  sum  requisitions — Fee  and  plant  rental  requi- 
sitions, 92 — Measuring  earned  sales,  93 — Schedule  of  cost  to  finish, 
94 — Compilation  of  schedule  of  closed  contract  and  jobbing  work, 
96 — Summary  of  entries,  98 — General  expense,  overhead  distribu- 
tion, 99 — Workmen's  compensation,  100 — Instructions  for  posting, 
101. 

CHAPTER  VIII. — GENERAL  LEDGER  ACCOUNTS 103 

Schedule  of  accounts. 

CHAPTER  IX. — SUMMARY  OF  SEQUENCE  OF  OPERATION 121 

Daily  entries — End  of  month  charges  and  credits  to  control,  127 — 
Fiscal  closing  entries,  131. 

CHAPTER  X. — THE  FINANCIAL  STATEMENTS 134 

Forecasting  financial  expenditures — The  financial  statements,  136. 

PART  II 

FIELD  ACCOUNTING  CONTROL 

CHAPTER  XI. — COST  ACCOUNTS  AND  UNIT  COSTS 145 

Need  for  cost  accounting — Objects  of  cost  accounting,  146 — Cumu- 
lative classified  unit  cost  record,  147 — Contract  cost  financed  by 
owner,  150 — Sub-contracts,  152. 

CHAPTER  XII. — ORGANIZATION  AND  PERSONNEL 154 

Duties  of  the  auditor,  155 — Duties  of  auditor's  assistants — Duties 
of  disbursing  agent,  156 — The  works  superintendent,  157 — The 
cost  engineer — Monthly  reports  to  owner,  159. 

CHAPTER  XIII. — CLASSIFICATION  AND  SYMBOLIZATION  OF  ACCOUNTS  161 
Basis    of    account    groups — Main    group    classification — Labor, 
materials  and  direct  expense  classification,  162 — General  expense 
classification,    163 — Sub-contract  classification,    164 — Illustrative 
sub-account  classification,  165. 

CHAPTER  XIV.     FIELD  ACCOUNTING  RECORDS 170 

Main  records — Cash  and  ledger  control  journal,  171 — Invoice  and 
payroll  register — Construction  cost  record,  176 — Accounts  payable 
ledger — Simplification  of  system,  178. 

CHAPTER  XV.— HANDLING  FIELD  PAPERS 181 

Field  accounting  forms — Field  orders,  182— Invoices  for  materials 
and  expense — Store-room  orders,  187 — Verification  of  time  records, 
191 — Plant  rental,  194 — Freight  bills,  195 — Recording  salvaged 
material — Contract  liability  of  owner,  196 — Condensed  sequence 
of  operation,  199. 


CONTENTS  ix 

PAGE 

CHAPTER  XVI.— MONTHLY   REPORT  TO  OWNER 201 

Nature  of  report — Statement  of  construction  costs — Main  group 
and  suspense  accounts,  203 — Analysis  of  pay  lists — Transcript  of 
ledger  control  accounts. 

PART  III 

MISCELLANEOUS  MATTERS 

CHAPTER  XVII.— PAYROLL  PROBLEMS 207 

Weekly  payroll — Handling  payroll  receipts,  208 — Audit  of  payroll, 
209 — Putting  up  the  money — Denominating  machine  for  payroll, 
work,  210 — Daily  time  checking  systems,  211. 

CHAPTER  XVIII.— CONTROL  OF  EQUIPMENT 213 

Equipment  card  ledger — Keeping  track  of  equipment  in  use — 
Classification  of  equipment,  215 — Charges  for  plant  rental,  216 — 
Small  tools,  217. 

CHAPTER  XIX. — PREPARATION  OF  ESTIMATES  AND  BIDS 218 

Creation  of  contract — Elements  of  cost,  219 — Points  to  watch  in 
compiling  estimates — Determination  of  plant  expense,  221 — Esti- 
mation of  profit. 

CHAPTER   XX.— MUNICIPAL    CONTRACTS 223 

Proposals  to  bid — Contract  guarantees,  224 — Municipal  contract 
register  and  accounting — Specimen  contract  bids,  226. 

CHAPTER  XXI.— LEGAL  ASPECTS  OF  CONTRACTS 232 

Contract  defined,  elements — Enforceability — Offer  and  acceptance, 
233 — Implied  contract,  Quasi  contract — Intention — Consideration, 
234 — Agent  and  principal,  235 — Daurages,  236 — Assumpsit. 


APPENDIX 

CONTRACTUAL  AGREEMENT 237 

Building  agreement — Lump  sum,  238 — Cost  plus  a  fee,  242 — Per- 
centage basis,  246. 


PRACTICAL  ACCOUNTING 

FOR 
GENERAL  CONTRACTORS 


PART  ONE 
FINANCIAL  ACCOUNTING 


CHAPTER  I 

REQUIREMENTS  FOR  SUCCESSFUL  OPERATION 

Necessity  for  an  Accounting  System. — When  discussing 
accounting  methods  with  a  contractor  it  is  not  unusual  for 
him  to  raise  the  objection  that  his  business  is  different 
from  others  and  therefore  any  cut-and-dried  system  of 
accounting  for  contractors  is  not  practical  and  will  not  work 
in  his  business.  That  his  business  is  different  from  others 
is  true  enough;  but  to  suppose  that  accounting  methods 
cannot  be  devised  to  fit  his  particular  needs  and  prove 
"practical"  in  scores  of  different  ways  is  far  from  being 
true.  It  is  a  commonplace  of  successful  accounting  practice 
that  the  installation  and  development  of  every  system  must 
be  adapted  in  its  details  to  the  conditions  but  that  certain 
principles  and  certain  basic  records  govern  the  account 
keeping  in  every  business  of  the  same  type. 

Accounting  systems  for  manufacturers,  when  carefully 
adapted  to  the  needs  of  a  particular  plant  give  highly 
satisfactory  results  and  prove  managerial  tools  of  such 
efficacy  that  when  once  tried  they  are  seldom  if  ever  dis- 
pensed with.  Though  a  standard  system  of  accounting 


does  not  yet  exist  for  use  in  the  general  contracting  business 
there  is  no  reason  why  its  mechanism  cannot  be  devised 
and  the  principles  and  methods  of  its  application  formu- 
ated.  It  is  possible  to  control  the  operations  of  the  con- 
tracting business  with  the  same  accuracy  and  relative 
economy  as  those  of  a  manufacturer  are  controlled  when 
methods  and  records  have  been  devised  that  apply  to  the 
contractor's  needs. 

The  accounting  system  for  contractors  to  be  described 
in  this  book  presents  certain  methods  of  record  not  hitherto 
formulated  into  a  complete  system.  The  primary  aim  of 
this  system  is  the  coordination  and  control  of  operations 
whereby  the  status  of  the  various  contracts,  both  individu- 
ally and  collectively,  can  be  ascertained  at  any  time. 
Secondary  aims  of  the  system  are  to  furnish  the  contractor 
with  the  information  of  most  value  to  him  in  the  financing 
and  management  of  his  business,  information  which  may 
be  tabulated  as  follows: 

1.  The  amount  of  cash  in  bank  each  morning. 

2.  The  forecasted  monthly  receipts  and  expenditures. 

3.  The  monthly  anticipated  sales — their  net  cost  and 
net  approximate  profit. 

4.  The  monthly  and  yearly  earnings  on  contracts. 

5.  The  monthly  and  yearly  earnings  on  jobbing  work. 

6.  The   equity   in    open    contracts    and   jobbing   work 
unbilled  and  unrequisitioned  to  date. 

7.  A  forecast  at  each  fiscal  period  showing  the  estimated 
net    profits    on    unfinished    contracts,    such    information 
being  presented  in  a  statement  of  the  total  amount  of 
estimated   unfinished   contracts  from  which  is  deducted 
the  total  estimated  "Cost  to  Complete." 

8.  The  total  sales  and  total  cost  of  sales  for  work  per- 
formed in  each  state  (if  operations  are  carried  on  in  several 
states),  to  facilitate  the  rendering  of  tax  reports  based  on 
net  profits  earned  during  the  fiscal  year. 

9.  The  liability  to  sub-contractors  for  unfinished  work, 
kept  on  distinct  records,  separate  from  the  accounts  of 


REQ  U I  RE  MEN  TS  FOR  S  UCCESSF  UL  OPERA  TION  3 

ordinary  vendors,  thus  showing  the  absorption  of  the 
value  of  sub-contract  work  in  current  costs. 

10.  A  cumulative  record  of  costs,  showing  (1)  the 
classified  units  of  each  kind  of  material  estimated  and 
ordered  to  coyer  the  contract,  and  (2)  the  estimated  total 
labor  and  expense  which  is  to  be  absorbed  weekly  thus 
furnishing  the  estimated  cost  to  finish.  These  records 
when  finished  are  filed  and  become  valuable  as  a  reference 
for  bids  on  repeat  orders,  or  subsequent  parallel  contracts. 

In  addition  to  the  foregoing  information  the  system 
includes  a  description  of  the  proper  methods  to  be  adopted 
for  the  control  of  field  contract  work  on  the  books  of  the 
general  contractor,  and  the  control  of  the  job  fund.  Com- 
plete instructions  are  given  for  the  installation  and  mainte- 
nance of  a  field  accounting  system  with  a  detailed  symbol 
distribution  of  cost  to  be  operated  by  the  contractor's 
staff  and  controlled  by  only  four  book  records. 

The  foregoing  information  covers  all  the  requirements  of 
the  general  contracting  business  no  matter  how  extensive 
may  be  the  operations  in  an  individual  case. 

Cost  Accounting  Requirements. — Contractual  cost 
accounting  requires  as  many,  if  not  more,  internal  cost 
accounts  than  a  manufacturing  business  and  some  of 
these  accounts  are  more  difficult  of  manipulation.  If  the 
construction  job  is  of  any  magnitude  the  cost  and  income 
accounts  may  represent  an  array  of  items  numbering  thou- 
sands. Later  in  the  discussion  it  will  be  seen  that  every 
detail  of  cost  and  income  must  be  distributed,  in  an  accu- 
rate manner,  and,  at  the  same  time,  such  distribution  must 
be  controlled,  step  by  step. 

The  volume  of  detail  entering  into  cost  and  income 
naturally  increases  with  the  extent  of  the  operations. 
The  monthly  accrual  of  sales,  the  collectible  accounts, 
the  payments  due  vendors,  the  forecasted  payroll,  the  true 
expense  and  cost,  must  all  be  showrn  in  their  truthful 
aspect.  Vendors'  invoices  may  come  in  monthly,  by 
thousands.  Hundreds  of  store  room  orders  may  be  issued 


4      PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

each  month,  each  of  which  must  be  segregated  to  the 
contract  or  job  affected.  In  a  large,  active  business,  the 
purchasing  and  paying  for  material  goes  on  constantly. 
And,  in  addition  to  the  entries  in  the  regular  books  of  ac- 
count, one  must  not  lose  sight  of  the  fact  that  an  important 
supplementary  record  which  must  be  kept  up  to  date,  is 
that  in  which  are  shown  total  costs  and  total  income 
accruing  in  each  state  during  each  year.  All  states  require 
the  contractor  to  file  a  report  of  work  done  therein  during 
the  year,  so  that  he  may  be  taxed  upon  the  annual  net 
profit  made  within  the  boundaries  of  each  state. 

Construction  Contracts. — Contract  plans  must  be  care- 
fully prepared  after  which  they  should  be  approved  by  all 
parties  interested.  The  next  step  is  the  preparation  of 
the  specification.  The  specification  is  a  document  describ- 
ing the  materials  to  be  used  in  the  construction,  stating 
how  they  are  to  be  used,  and  indicating  how  the  various 
works  are  to  be  executed.  Every  portion  of  the  work 
involved  in  the  construction,  should  be  covered  by  this 
document. 

The  specification  is  written  under  the  direction  of  the 
architect.  Usually,  two  copies  of  the  paper  are  made; 
one  copy  is  given  the  contractor  and  the  other  is  retained 
by  the  architect  who  directs  the  preparation  of  an  approxi- 
mate estimate  of  the  cost  of  the  proposed  work.  The  bills 
of  quantities  are  prepared  by  a  quantity  surveyor.  These 
generally  become  part  of  the  contract  and  are  specified 
as  such  therein. 

Based  upon  the  drawings  made,  the  quantity  surveyor 
estimates  the  materials  required  for  the  work,  setting  out 
the  quantities  of  each  in  the  form  of  a  bill,  made  up  on 
journal-ruled  paper,  to  enable  the  contractor  to  price  each 
item,  and  to  estimate  the  amount  of  labor  involved.  The 
idea  behind  this  estimate  is  to  arrive  at  a  lump  sum  for 
which  the  contractor  will  undertake  to  do  the  work. 

Before  beginning  construction  activities,  the  contractor 
must  sign  a  contract,  to  the  effect  that  he  will,  for  a  stated 


REQ UIREMENTS  FOR  S UCCESSFUL  OPERA  TION  5 

sum  of  money,  undertake  to  carry  out  the  work,  in  accor- 
dance with  the  terms  of  the  specifications,  the  drawings,  the 
bills  of  quantities  and  the  instructions  of  the  architect. 
Further,  the  contract  should  state  that  the  work  must  be 
done  to  the  entire  satisfaction  of  the  architect;  it  should 
specify  the  manner  of  carrying  on  the  work  and  the 
responsibilities  of  the  contractor.  This  last  condition 
refers  especially  to  clauses  indemnifying  the  employer 
against  accidents  to  employees  and  against  numerous 
other  risks.  Likewise,  the  agreement  should  contain 
clauses  relating  to  the  completion  of  the  work,  the  penalty 
for  non-completion  (the  usual  allowance  being  made  for 
bad  weather,  fire  or  strikes)  and  should  specify  all  payments 
to  be  made  to  the  contractor  as  the  work  progresses. 
The  requirements  of  each  case  will  govern  the  contents 
of  the  contract  made  relative  thereto.  As,  a  rule,  the 
architect  prepares  this  agreement.  The  essential  features 
of  contracts  and  the  laws  governing  them  are  discussed 
in  the  last  chapter  of  this  book. 

Importance  of  Adequate  Control. — There  is  no  reason 
why  construction  accounts  should  not  be  handled  as 
accurately  and  expeditiously  as  accounts  in  other  lines  of 
business.  Most  accountants,  for  instance,  are  familiar 
with  the  accounting  system  of  a  small  cloak  and  suit 
house  which  has  its  work  done  on  a  contract  basis  and  most 
of  these  houses  have  a  system  of  accounts  which  is  both 
accurate  and  satisfactory.  But  when  we  come  to  con- 
struction work,  system  and  accuracy  are  not  always 
encountered. 

The  contract  undertaken  by  the  Thompson-Starrett 
Co.  to  erect  the  Equitable  Building  involved  probably  the 
expenditure  of  twenty  millions  of  dollars;  that  of  the  George 
A.  Fuller  Co.  for  the  erection  of  the  Pennsylvania  Hotel, 
involved  at  least  a  like  amount.  Each  of  these  jobs  took 
2  years  to  complete,  and  millions  of  dollars  were  received 
and  disbursed  within  that  time.  Unless  works  of  such 
magnitude  are  controlled  at  every  step  by  an  accurate 


6      PR  A  CTICA  L  A  CCO  UN  TING  FOR  GENERA  L  CON  TRACTORS 

system  of  accounts,  waste,  leakages,  and  excessive  costs 
make  it  impossible  for  the  contractor  to  keep  within  the 
estimated  figures. 

Importance  of  Working  Capital. — If  one  wishes  to 
become  a  successful  general  contractor,  certain  financial 
considerations,  all  of  which  are  closely  related  to  the  matter 
of  "working  capital,"  should  be  borne  in  mind.  In  brief, 
these  may  be  enumerated  as  follows: 

1.  The   contractor  must   have   ample   working   capital 
or  the  credit  to  procure  that  capital  as  it  is  required.     In 

j  amount,  this  may  reach  10  per  cent  or  more  of  the  total 
value  of  the  work  performed,  plus  the  uncollected  accounts 
accrued  and  due.  Labor  must  be  paid  weekly  and  vendors' 
bills  fall  due  within  a  limited  length  of  time,  whereas, 
collections  at  best  do  not  come  in  more  frequently  than 
once  a  month,  with  a  possible  retention  of  part  of  the  amount 
due  until  final  payment  is  made. 

2.  The  contractor  should  know  by  forecast  on  the  first 
of  each  month,  the  extent  of  his  obligations — what  he  has 
to  expend  during  the  current  month,  his  collections  from 
customers,  and  the  amount  he  can  get  on  bank  credit.     The 
possible  receipts  should  be  more  than  enough  to  meet  the 
necessary  estimated  expenditures.     In  computing  possible 
receipts  from  customers,  delinquents  should  of  course  be 
excluded 

3.  Care  should  be  observed  in  the  purchase  of  materials, 
in  order  not  to  overburden  the  business  with  surplus  stock. 
If  goods  are  purchased  in  quantities  on  a  low  market,  and 
stored  against  future  high  prices,  the  saving  should  more 
than  equal  the  standard  rate  of  interest  on  the  tied-up 
capital.     Ordinarily,  material  should  be  purchased  to  meet 
the  requirements  of  the  contracts  under  way;  in  effect, 
this  requires  material  to  be  delivered  as  the  contracts  are 
ready  for  their  installation.     Every  dollar's  worth  of  waiting 
material  represents  so  much  investment  eating  up  interest. 
This  fact  is  reflected  in  the  charges  for  bank  loans. 

4.  Overhead  extravagance,   administration  and   selling 


REQ  U I  RE  MEN  TS  FOR  S  UCCESSF  UL  OPERA  TION  7 

expenses,  should  be  curtailed  to  the  irreducible  minimum 
and  compensation  should  be  paid  for  capacity  and  effort 
only;  incompetence  of  any  kind  should  not  be  condoned. 

The  last  recommendation  enumerated  above  may  sound 
like  a  counsel  of  perfection,  easier  said  than  done;  but  if 
the  contractor  keeps  adequate  records  he  should  be  able 
to  detect  extravagance  and  waste  at  their  source  and  be  in 
a  position  to  recognize  capacity  and  effort.  In  extreme 
instances,  as  when  a  piece  of  construction  requires  several 
years'  time  and  the  investment  of  millions  of  dollars  before 
the  work  is  completed,  the  force  of  the  above  remarks  is 
perhaps  better  appreciated  than  where  the  job  is  only 
a  small  one.  Yet  the  underlying  principles  in  either  case 
are  the  same;  success  or  failure  depends  upon  their  proper 
application. 

It  is  not  uncommon  for  an  authentic  and  reliable  state- 
ment of  a  contractor's  business  to  show  a  surplus  and 
undivided  profits  equal  to  one  half  the  total  assets  and  yet 
for  the  accounts  receivable  to  be  three  times  the  amount  of 
the  liabilities  to  trade  creditors.  These  obligations  have 
to  be  paid  during  the  current  month  and  the  contractor 
has  to  renew  notes  with  his  bank  falling  due  during  the 
month  equal  to  10  per  cent  of  the  anticipated  collections. 
Such  a  condition  is  usually  caused  by  the  big  " hold-back" 
in  the  form  of  the  retention  of  part  of  the  payments  due  on 
the  requisition  for  work  performed.  A  contractor  doing 
work  on  requisition  is  never  on  even  terms  with  his  customer 
until  the  final  payment  is  made;  in  the  interim  between 
the  beginning  and  end  of  a  contract,  the  amount  retained 
on  each  requisition  constantly  accumulates  and  this 
deferred  income  usually  amounts  to  approximately  10  per 
cent  of  the  volume  of  business  done  annually.  As  this 
retention  is  a  necessary  evil  of  the  contracting  business, 
the  only  remedy  is  to  lift  the  burden  from  the  contractor's 
shoulders  to  the  broader  back  of  the  bank — an  institution 
that  is  generally  willing  to  carry  it  for  due  consideration. 

In  building  and  equipping  a  large  vessel,  for  example, 


8      PR  A  CTICA  L  A  CCO  UN  TING  FOR  GENERA  L  CONTRA  CTORS 

the  time  element  may  cover  3  or  4  years  and  the  outlay 
may  amount  to  several  millions  of  dollars.  The  problem, 
in  such  an  extraordinary  case,  is  solved  by  throwing  a 
large  part  of  the  burden  of  providing  the  expenses  of  con- 
struction upon  the  purchaser.  Even  with  comparatively 
small  pieces  of  construction  this  arrangement  is  customary. 
The  construction  contract  may  provide  for  the  inspection 
and  acceptance  of  the  work  when  completed  up  to  givent, 
stages,  or  at  given  intervals  and  for  payment  on  account 
by  the  purchaser  of  a  proportionate  share  of  the  contract 
price. 

If  such  contracts  were  invariably  made  and  adhered  to, 
insolvencies  in  the  contracting  business  would  be  less 
frequent,  for  there  is  scarcely  any  line  of  business  in  which 
bankruptcies  are  more  numerous  in  proportion  to  the 
number  engaged  in  the  work.  The  explanation  is  nearly 
always  the  same;  the  working  capital  is  not  sufficient  to 
"swing"  its  undertakings.  This  is  a  difficulty  which 
is  peculiarly  apt  to  confront  all  enterprising,  progressive 
and  otherwise  successful  contractors.  There  is  only  one 
remedy — the  caution  engendered  by  an  adequate-  account 
keeping  system. 


CHAPTER  II 

TYPES  OF  CONSTRUCTION  CONTRACTS 

Introduction. — In  this  and  the  following  chapter  will  be 
discussed  the  types  of  construction  contracts  that  may  be 
entered  into,  their  advantages  and  limitations,  and  the 
opening  entries  required  for  their  record  on  the  books  of 
account.  These  entries  should  be  carefully  studied  as 
upon  their  proper  record  depends  largely  the  correctness 
of  the  entries  to  be  made  later.  The  office  routine  involved 
in  the  handling  of  these  contracts  will  also  be  explained 
as  far  as  is  necessary  to  make  clear  the  general  procedure 
in  recording  a  specific  contract. 

The  General  Contractor  and  His  Duties. — The  general 
contractor  covers  the  whole  contract.  Any  work  which  is 
not  handled  by  him  directly,  but  which  is  performed  by 
some  other  party,  is  said  to  be  taken  care  of  by  a  "sub- 
contractor." 

The  term  "general  contractor"  is  elastic.  On  a  large 
contract  there  may  be  ten  or  more  sections  of  the  work 
sub-contracted  for;  each  one  of  these  sub-contractors  may 
be  said  to  be  a  sub-general  contractor  when  he,  in  turn, 
lets  a  sub-contract  for  part  of  the  work  he  has  agreed  to 
perform  for  the  general  contractor. 

The  duties  of  a  contractor  are  similar  to  those  of  the 
architect,  except  that  he  is  not  expected  to  plan  and  design. 
His  field  of  endeavor  is  to  carry  out  the  plans  and  designs 
of  the  architect  in  the  actual  work  of  construction.  It 
follows  that  the  contractor  must  be  thoroughly  qualified 
for  his  duties.  He  must  be  especially  familiar  with  the 
erection  of  scaffoldings,  shorings,  etc.;  he  should  have  a 
thorough  knowledge  of  materials,  including  such  special 
information  as  qualifying  marks  or  brands,  the  special 
features  of  good  and  bad  in  each  class,  and  their  adapt- 

9 


10    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

ability  to  specific  conditions;  and  should  be  able  to  control 
and  manage  men. 

Sub-contractors. — As  mentioned  above,  a  sub-contractor 
is  a  person  who  performs  some  of  the  work  on  a  construction 
job  under  contract,  thereby  relieving  the  general  contractor 
from  the  necessity  of  handling  all  the  work  himself  directly. 
The  sub-contractor's  price,  as  agreed  upon  between  the 
two,  should  not  be  charged  at  once  into  the  cost  of  the 
general  contract.  It  should  be  entered  upon  the  books  of 
account  as  a  deferred  item,  thus: 

Debit:  Deferred  Contract  Cost 

Credit:  Sub-contractor  (an  account  payable) 

Monthly,  when  the  sub-contractor  sends  his  requisition 
to  the  contractor  asking  payment  for  the  work  performed, 
the  value  as  shown  thereon  is  taken  up  into  the  accounts, 
as  follows: 

Debit:  Accrued  Contract  Cost 

Credit:  Deferred  Contract  Cost 

A  notation  on  the  sub-contractor's  account  in  the 
Accounts  Payable  Ledger  should  be  made  to  the  effect  that 
this  amount  has  been  approved  for  payment.  When  the 
bill  is  paid,  the  entry  for  payment  is  handled  through  the 
Cash  Book  in  the  regular  manner. 

Types  of  Construction  Contracts. — Types  of  construc- 
tion contracts  under  which  the  contractor  works  are  many. 
The  following  are  typical: 

1.  Lump  sum,  or  set  price  contract. 

2.  Upset  limit  contract. 

3.  Time  and  material  contract. 

4.  Fee  contract. 

5.  Unit  price  contract. 

6.  Jobbing  work  contract. 

7.  Cost  plus  contract. 

In  this  chapter  will  be  discussed  all  the  above  topics  of 
contract  with  the  exception  of  cost  plus  contracts  which  are 
to  be  taken  up  in  the  following  chapter. 


TYPES  OF  CONSTRUCTION  CONTRACTS  11 

Lump  Sum  or  Set  Price  Contracts. — Under  the  lump 
sum  or  set  price  contract  the  contractor  agrees  to  do  for 
the  owner  certain  work  for  the  performance  of  which  he  is 
to  be  paid  a  stated  amount.  The  difference  between  the 
cost  and  agreed  price,  on  completion  of  the  work,  measures 
the  amount  of  profit  or  loss  for  or  against  the  contractor. 
The  work  is  to  be  performed  subject  to  thie  architect's 
approval.  The  bid  made  by  the  contractor,  based  upon 
his  estimate  of  cost,  governs  the  stated  amount  the  con- 
tractor is  to  receive  for  a  specifically  stated  class  of  work. 
The  amount  agreed  upon  is  collectable  by  the  contractor  in 
full  only  upon  the  performance  of  the  work  as  set  out  in 
the  bid.  The  owner  cannot  be  held  for  more  than  the 
lump  sum  agreed  upon;  but  the  contractor  must  complete 
the  work  even  at  a  loss  to  himself.  If  the  contractor 
finishes  the  job  at  a  loss,  he  has  no  recourse  against  the 
owner  to  make  good  such  loss.  The  owner,  if  the  loss  was 
unforeseen  or  unavoidable,  may  be  considerate  enough  to 
allow  the  contractor  additional  compensation  for  his 
outlay.  But  such  instances  are  rare;  they  are  not  consid- 
ered "good  business." 

As  soon  as  the  contract  is  properly  signed  by  the  parties 
thereto,  a  bill  should  be  made  out  immediately  which,  when 
entered  in  the  books  constitutes  the  first  record  of  the 
contract  as  follows: 

Debit:  Owner. 

Credit:  Unearned  Contract  Sales. 

The  above  entry  is  made  for  the  full  amount.  The 
contract  is  then  given  a  number  by  which  it  will  be  known 
during  its  life.  It  is  next  filed  in  an  upright  folder  in  its 
consecutive  order. 

The  original  contract  may  be  productive  of  additional 
work,  for  the  reason  that  the  requirements  were  not  covered 
fully  in  the  original  specifications.  All  such  extra  work  is 
given  to  the  contractor  by  the  issuance  of  what  are  known 
as  "Extra  Orders."  These  extra  orders  must  be  approved 


12    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

by  the  architect,  and,  when  so  issued  and  approved,  they 
form  an  integral  part  of  the  original  contract,  but  are  suppl- 
mental  to  the  agreed  price. 

Some  customers  pay  these  extra  orders  in  full,  when 
complete,  by  separate  check;  others  pay  them  partially, 
reserving  an  amount  to  which  the  contract  is  subject. 
In  this  latter  case,  they  are  added  to  the  contract  price  on 
the  monthly  requisition,  to  show  the  total  amount  under 
contract  for  which  payment  is  to  be  made. 

At  the  end  of  the  month  these  contracts  are  subject  to 
requisition  for  the  amount  of  work  completed,  minus  the 
reserve  and  cash  paid  on  account.  They  are  classed  as 
speculative  contracts  because  the  profit  they  may  produce 
is  an  uncertain  quantity.  Although  estimated  to  bring  in 
a  profit  the  actual  result  may  be  a  loss.  Frequently  the 
sum  total  of  extra  orders  exceeds  the  payments  to  be  made 
under  the  original  agreement. 

All  extra  work  orders  in  connection  with  a  contract  should 
be  made  in  duplicate  and  numbered  consecutively  from 
one  up.  Upon  receipt  of  the  twro  copies,  the  original  goes 
to  the  foreman  on  the  job,  and  the  duplicate  is  placed  on 
file  in  the  accounting  office.  When  the  original  is  later 
returned  to  the  office  with  the  price  affixed,  as  is  the  custom, 
it  is  filed  with  the  original  contract.  The  duplicate  is 
retained,  to  be  used  as  a  posting  medium  for  completed 
extra  orders;  the  entry  at  the  time  of  return  of  original 
copy  should  be  similar  to  the  one  made  above,  viz. 

Debit:  Owner. 

Credit:  Unearned  Contract  Sales 

Deduction  for  cancellation  of  any  extra  orders  issued  or, 
allowances  for  any  modifications  of  the  original  contract 
price  are  all  numbered  in  the  same  sequence  as  the  numbers 
given  the  extra  orders  and  when  posted  against  the  owner 
on  accounts  receivable,  these  credits  should  be  entered 
therein  on  the  debit  side  in  red  figures.  This  method 
eliminates  confusion  often  occasioned  by  numerous  allow- 


TYPES  OF  CONSTRUCTION  CONTRACTS  13 

ances  being  entered  on  the  credit  side  of  the  account  with 
payments.  If  this  is  done,  the  net  footing  of  the  debit  side 
of  the  account  with  the  owner  will  show  the  total  value 
contracted  for,  while  the  credit  side  will  show  only  the 
actual  cash  collected.  The  debit  for  these  deduction 
entries,  to  offset  the  credits  mentioned  above,  should 
be  entered  in  red  figures  on  the  credit  side  of  the 
account  with  unearned  contract  sales,  in  order  to  reduce  this 
accounts  credit  footing  to  its  proper  status  of  net  sales. 

A  lump  sum  or  set  price  contract  may  be  subject  to  a 
time  limit.  If  so,  it  may  be  agreed  that  the  owner  is  to 
reserve  a  certain  percentage,  ranging  from  5  to  15  per 
cent,  of  each  month's  payment  due  the  contractor  until 
the  work  is  fully  completed.  At  such  time,  if  completion 
is  made  within  the  limit,  the  reserved  amount  will  be  paid 
the  contractor. 

In  relation  to  the  above  discussion  the  principles  con- 
cerned with  this  type  of  contract  may  be  summarized  as 
follows : 

1.  The  original  contract  plus  extra  orders  equals  contract 
price.     Contract  price,  less  deductions,  equals  net  contract 
value. 

2.  "Cost   in,"   that  is  total  expenditure  to  date,  plus 
10  per  cent  for  overhead  and  profit,  equals  proportion  of 
contract  price,  less  retention,   equals  collectible  amount. 

3.  Collectible  amount  less  cash  paid  equals  amount  due 
upon  current  requisition. 

4.  Amount  reserved  by  owner  is  deferred  until  final 
payment.     Thus  the  amount  of  the  contract  cost  is  the 
burden    of   investment    which    the    owner   must    assume 
personally. 

5.  The  portion  of  this  class  of  contract,  as  above  stated, 
which   is   accrued   and  due,   and  represents  the  accrued 
sales,  is  the  "cost  in"  plus  overhead,  on  the  basis  of  10 
per  cent.     The  "cost  in"  plus  10  per  cent,  for  overhead 
and  profit  should  be  transferred  at  the  end  of  the  month  by 
a  charge  to  Unearned  Contract  Sales  account  and  a  credit 


14    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

to  Earned  Contract  Sales.  This  amount  constitutes  as 
nearly  as  it  is  possible  to  calculate  the  income,  that  is, 
the  gross  sales,  on  contracts  of  this  class. 

A  general  contractor  may  sub-let  various  parts  of  the 
work  to  other  contractors  upon  any  terms  he  deems 
desirable.  It  would  be  more  consistent,  however,  to 
sub-let  under  the  conditions  he  has  assumed  on  the 
original  contract.  By  so  doing,  his  payments  to  sub- 
contractors for  the  part  completed  each  month  are  equa- 
lized and  conform  with  the  payments  received  from  the 
owner;  both  would  be  reimbursed  equitably  in  proportion 
to  the  percentage  of  work  performed  by  each. 

Set  price  or  lump  sum  contracts  as  above  described, 
whether  for  construction  work  or  job  work,  are  those 
most  commonly  made  and  the  discussion  in  this  book 
assumes  that  such  contracts  are  being  considered  unless 
otherwise  stated. 

Upset  Limit  Contracts — Can  be  No  More;  Can  be  Less.— 
This  class  of  contract  is  an  agreement  between  the  con- 
tractor and  owner  whereby  the  former  is  to  perform  work 
for  the  latter,  which,  no  matter  what  the  cost  is  to  the 
former,  shall  not  exceed  a  price  limit  to  the  latter.  If 
the  price  agreed  is,  say  $50,000  and  it  costs  $55,000  to 
complete  the  work,  the  contractor  can  only  collect  $50,000, 
thereby  sustaining  a  loss  of  $5,000.  On  the  other  hand, 
if  the  completed  work  cost,  $45,000.,  this  latter  amount  is 
all  he  can  collect.  However,  this  upset  is  usually  at  a 
limit  which  will  fully  provide  for  the  cost,  and  return  a 
profit  as  well.  The  very  fact  of  the  limit  shows  that  the 
clamp  is  on  pretty  tight. 

This  class  of  contract  is  not  much  sought  after,  and, 
as  a  general  thing,  is  the  exception  rather  than  the  rule. 
Such  contracts  are  treated  like  a  set  price  contract,  as  far 
as  recording  and  filing  goes.  While  they  might  be  prolific 
of  extra  orders,  it  is  an  unusual  thing  for  the  contractor 
to  get  any  work  beyond  that  covered  by  the  upset  price. 
The  word  cost,  as  above  used,  means  "whole  cost,"  includ- 


TYPES  W  CONSTRUCTION  CONTRACTS  15 

ing  the  profit — namely,  the  selling  price,  which  is  the  amount 
billed. 

Time  and  Material  Contracts. — In  time  and  material 
contracts,  the  whole  cost  is  determined  by  official  estimate, 
but  neither  the  owner  nor  the  contractor  are  obligated 
thereunder  to  any  fixed  amount.  When  this  type  of 
contract  is  signed,  a  memorandum  should  be  made  giving 
the  contract  a  number  for  filing  purposes,  and  an  account 
should  be  opened  in  the  Customers'  Ledger  to  receive  the 
billing  as  the  work  progresses. 

The  operation  of  such  a  contract  is  governed  by  billing 
the  owner  for  the  cost  of  the  direct  expense,  labor,  and 
material  incurred  in  the  work  each  month,  computed  on 
a  weekly  basis,  plus  the  cost  of  supervision  and  a  certain 
agreed  profit.  Gross  sales  and  gross  profit  accrue  at  the 
time  the  bill  is  rendered.  In  other  words,  profit  can  be 
determined  on  this  type  of  contract  each  month  as  it 
accrues  on  each  bill  rendered.  These  bills  are  made  from 
foremen's  reports  of  material  installed,  labor  payrolls, 
store  room  charges,  and  miscellaneous  expense  vouchers. 
When  a  bill  is  completed,  it  is  charged  to  Owner's  account 
and  credited  to  Earned  Contract  Sales  account.  The 
owner  is  expected  to  remit  payment  covering  such  bill 
within  a  reasonable  time  after  its  receipt.  Infrequently, 
an  owner  may  withhold  temporarily  a  certain  percentage 
of  each  bill  but  as  a  rule  each  bill  is  paid  in  full. 

Under  this  type  of  contract,  also,  work  in  excess  of  the 
forecasted  original  estimate  is  usually  covered  by  extra 
orders. 

It  should  be  noticed  that  the  original  estimate  of  the 
cost  of  the  work,  plus  the  cost  of  extra  orders  relative 
thereto,  is  not  posted  to  the  account  with  the  owner. 
The  owner,  as  indicated  above,  is  charged  only  with  the 
amounts  of  the  bills  rendered  to  him  for  work  performed. 
However,  it  is  good  practice,  in  order  to  control  the  con- 
tractor's liability  in  connection  with  work  under  way,  to 
insert  a  memo  entry  in  the  Owner's  account,  the  estimated 


16    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

original  value  of  the  work  to  be  performed,  plus  the 
amounts  of  any  extra  work  orders.  This  will  permit, 
at  any  time,  the  measuring  of  the  amount  of  cost  required 
to  finish  each  specific  contract,  or  the  determining  of  the 
value  of  the  unfinished  cost  thereof. 

The  value  of  the  unfinished  contract  is  arrived  at  as 
follows : 

From  the  value  of  the  original  estimate  as  shown  in  the 
memo  entry  in  the  Owner's  account,  plus  the  values  of  all 
extra  orders  (likewise  set  out  in  a  series  of  memo  entries) 
deduct  the  amount  of  the  total  bills  rendered  the  owner  as 
shown  by  actual  charges  in  his  account.  This  remainder, 
less  the  amount  of  the  approximated  profit  and  supervision 
charge,  gives  the  unfinished  cost  of  the  job;  it  is  a  contract 
liability.  Under  the  lump  sum  or  set  price  contract,  the 
rule  is  similar  in  determining  the  approximate  value  of 
the  unfinished  cost  obligation  to  finish,  except  that  here 
the  total  contract  price  plus  the  price  of  extra  orders,  as 
taken  directly  from  the  Owner's  account,  is  a  real  charge 
to  be  liquidated  by  cost.  This  total  is  reduced  by  the 
10  per  cent  estimated  profit,  and  the  remainder  is  reduced 
by  the  cost  to  date.  The  result  is  the  approximate  value 
of  the  unfinished  cost  obligation  to  finish. 

Time  and  material  contracts  may  embody  sub-con- 
tractors' activity.  If  so,  it  is  a  good  plan  to  incorporate 
their  cost  in  the  regular  contract  to  the  extent  of  their 
regular  monthly  requisition.  Each  such  requisition  should 
be  treated  in  a  manner  similar  to  that  of  an  invoice  for 
material  received  from  a  vendor.  If  the  value  of  the  entire 
sub-contract  is  named,  it  should  be  set  up  on  the  books  as  a 
charge  to  Deferred  contract  Cost  and  as  a  credit  to  Con- 
tract Liability.  Each  sub-contractor's  monthly  requisi- 
tion then  may  be  treated  as  a  journal  transfer,  charging 
Contract  Liability  account  and  crediting  Deferred  Contract 
Cost.  The  number  of  the  requisition,  or  invoice,  is 
indicated  in  the  journal  entry.  After  the  above  journal 
entry  is  made,  the  requisition  is  treated  like  a  regular 


TYPES  OF  CONSTRUCTION  CONTRACTS  17 

invoice,  being  analyzed  and  posted  as  a  debit  to  Accrued 
Contract  Cost  and  as  a  credit  to  Accounts  Payable.  This 
method  of  handling  pre\  ents  the  real  accrued  cost  of  sub- 
contract work  from  becoming  inextricably  confused  in  a 
maze  of  accounts  payable  records. 

The  large  contracting  companies,  such  as  the  Thompson- 
Starrett  Co.,  George  A.  Fuller  Co.,  and  others,  beyond  a 
doubt,  keep  an  auxiliary  ledger  in  which  are  recorded  all 
sub-contracts.  Deferred  Contract  Charges  account  is  de- 
bited and  Deferred  Accounts  Payable  (or  Sub-Contract 
Liability)  account  is  credited.  When  the  monthly  requisi- 
tions come  through,  as  above  explained,  these  accounts  are 
proportionately  cleared.  Eventually,  both  these  general 
accounts  are  absorbed  and  wiped  out  by  the  periodic 
transfer  of  a  proportionate  amount  of  accured  current  cost 
and  liquidation  responsibility.  This  method  of  control  is 
to  be  recommended,  as  it  segregates  in  its  entirety  each 
contract  taken,  with  its  accompanying  extra  orders. 

Fee  Contracts. — During  the  war,  fee  contracts  were 
much  in  use  in  Government  work.  This  class  of  contract 
is  an  agreement  whereby  the  owner  finances  the  project. 
He  liquidates  all  the  invoices  from  vendors  for  material 
used  in  construction,  reimburses  for  all  the  payrolls, 
appoints  and  pays  the  field  office  force,  and,  in  fact,  assumes 
all  the  liability  incurred  by  the  contractor. 

The  fee  is  based  on  a  contract  price,  which  is  tentative 
in  its  aspect,  for  the  reason  that  a  fee  penalty  may  be 
exacted  for  an  excess  cost  on  the  price  estimate,  while  a 
premium  may  be  given  for  a  reduction  in  the  cost  on  com- 
pletion. 

In  addition  to  the  original  estimate  of  cost  on  which 
the  fee  is  based,  supplemental  work  orders,  may  be  issued 
as  before,  to  the  general  contractor  after  approval.  For 
each  extra  work  order  issued,  the  contractor  secures  an 
additional  fee,  equal  to  the  amount  that  the  extra  order 
bears  to  the  original  official  estimate.  This  additional  fee 
is  calculated  upon  a  percentage  basis;  the  original  fee 


18    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

multiplied  by  this  percentage  gives  the  amount  of  the 
fee  on  the  extra  work. 

The  contractor,  also,  is  allowed  a  stipulated  amount  for 
plant  rental,  to  reimburse  him  for  wear  and  tear  on  any 
machinery  he  may  supply  and  which  is  essential  to  the 
construction  under  the  conditions  of  the  contract.  This 
compensation  is  for  rental  only.  Expense  upkeep  is  not 
to  be  included,  since  this  he  himself  must  pay.  The 
rental  paid  is  assumed  to  be  adequate  to  insure  compensa- 
tion for  any  unforeseen  contingencies — such  as  a  break- 
down— to  which  his  plant  may  be  subjected.  Fuel  and 
labor  operation  costs  are  assumed  by  the  owner  but  plant 
items,  such  as  tools,  etc.,  are  supposed  to  be  paid  for  by 
the  contractor.  If,  through  error  or  fraud,  some  of  these 
items  have  been  charged  to  cost  of  construction,  and  adjust- 
ment thereof  must  be  made,  this  is  done  by  the  issuance 
of  a  Collection  Bill  against  the  contractor.  If  the  con- 
tractor does  not  pay  this  the  amount  is  deducted  from  the 
final  payment  of  fee  or  plant  rental  due  him. 

Sub-contract  work  may  arise  in  connection  with  fee 
contracts.  Ten  or  more  sub-contractors  may  be  involved, 
each  one  representing  a  different  feature  of  construction. 
Each  sub-contractor  works  under  a  special  contract  which 
may  or  may  not  be  similar  to  the  contract  under  which 
another  sub-contractor  works.  One  may  be  on  the  basis 
of  a  lump  sum,  another  on  the  fee  and  plant  rental  basis, 
another  on  the  unit  price  basis,  etc. 

In  a  sub-contract  for  a  lump  sum,  the  sub-contractor 
makes  his  claim  for  payment  by  requisition.  He  supplies 
everything  in  the  way  of  labor  and  material,  these  two 
items  representing  the  costs  which  support  his  claim  for 
payment.  In  a  sub-contract  on  the  basis  of  fee  and  plant 
rental,  all  material  and  labor  is  paid  for  by  the  owner. 
These  material  and  labor  costs,  plus  the  fee  and  plant 
rental  charge,  become  the  basis  of  the  actual  cost  of  the 
official  estimate  to  complete.  Such  cost  may  be  either 
over  or  under  the  official  estimate. 


TYPES  OF  CONSTRUCTION  CONTRACTS  19 

Unit  Price  Contracts. — A  unit  price  contract  is  operated 
against  an  estimated  cost  to  complete,  based  on  the  number 
of  units  required,  at  an  agreed  price  per  unit.  At  comple- 
tion it  may  show  either  an  over-run  or  under-run  in  relation 
to  the  cost  estimated.  The  owner  is  billed  at  different 
periods  for  the  value  of  the  units  installed,  such  bill  usually 
being  subject  to  a  reserve  which  is  held  back  to  the  amount 
of  10  or  15  per  cent,  which  reserve  is  collectible  by  the 
contractor  in  his  final  billing  for  the  work  performed. 
This  is  a  desirable  form  of  contract  if  the  agreed  price  per 
unit  is  based  on  a  fair  return.  An  attempt  should  be  made 
to  keep  the  overhead  within  the  amount  of  the  difference 
between  cost  and  the  price  agreed  upon  in  order  that  the 
contract  may  be  productive  of  a  fair  net  profit. 

In  a  contract  based  on  unit  price,  the  contractor  supplies 
the  labor  and  material,  periodically  billing  at  the  unit 
price  agreed  upon  for  the  portion  of  the  work  completed, 
less  a  10  per  cent  reduction  temporarily  held  until  the 
final  bill  is  rendered. 

In  certain  instances,  80  per  cent  of  the  work  under  a 
contract  may  be  performed  by  sub-contractors.  To  keep 
adequate  records  of  the  sub-contracts,  a  card  ledger  proves 
valuable,  that  is,  a  card  account  should  be  opened  for  each 
sub-contractor,  the  opening  entry  being  dependent  upon 
the  agreement  under  which  the  sub-contractor  works. 

Jobbing  work  is  auxiliary  to  regular  contracting  but  may 
develop  to  large  proportions  in  some  cases  to  $50,000  or 
more  a  month.  It  involves,  at  times,  the  recording  of  five 
or  six  hundred  customers'  bills  each  month.  Since  an  indi- 
vidual internal  account  must  be  incorporated  in  the  books 
of  account,  to  which  is  posted  the  cost  and  income  of  each 
job,  to  conduct  this  branch  of  the  business  properly  involves 
attention  to  much  detail. 

In  assigning  a  job  contract,  notices  are  made  out  in 
duplicate  each  bearing  the  number  of  the  job.  The 
original  is  forwarded  to  the  foreman  who  is  to  superintend 
the  work.  He,  in  turn,  sends  in  vouchers,  consisting  of 


20    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

approved  bills  from  vendors,  and  store-room  orders  for 
material  consumed  in  the  work,  as  well  as  payrolls  covering 
the  work,  all  of  which  bear  the  job  notice  number.  The 
vouchers  are  billed  to  the  customer  at  a  good  profit  to 
the  contractor,  and  are  charged  to  the  correct  account  in  the 
Accounts  Receivable  Ledger,  and  credited  to  Jobbing  Sales. 
All  bills  to  customers  are  made  out  in  duplicate.  The 
original  is  forwarded  to  the  customer  and  the  duplicate  is 
placed  on  an  arch  file  as  a  posting  medium  for  use  in  the 
accounting  department. 


CHAPTER  III 

COST  PLUS  CONTRACTS 

Nature  of  Contract. — This  class  of  contract  was  fre- 
quently employed  between  the  U.  S.  Government  and  con- 
tractors during  the  war  and  is  increasingly  being  used  today 
under  certain  safeguards  and  limitations  to  be  explained 
later.  The  contract  is  given  and  taken  on  the  basis  of  a 
certain  percentage  which  the  owner  must  pay  to  the  con- 
tractor on  the  actual  cost  of  the  construction  involved. 
The  cost  is  measured  by  a  statement  of  expenditures  with 
vouchers  attached  to  show  the  contractor's  disbursements. 
The  total  disbursements,  plus  the  percentage  as  agreed,  is 
the  amount  of  reimbursement  to  be  paid  by  the  owner  and 
such  percentage  is  the  contractor's  profit  for  the  perfor- 
mance of  the  work. 

In  a  contract  of  this  kind  it  is  customary  to  have  a 
"Field  Force"  supplied  by  the  contractor  to  take  care  of 
the  accounting,  subject  to  the  approval  of  the  owner's 
representative  who  is  on  the  job  in  the  latter's  interest. 
The  compensation  of  the  field  force  is  included  in  the  cost 
and  is  paid  for  by  the  owner,  but  only  to  the  extent  of  the 
actual  amount  paid  the  employees;  that  is,  the  compensa- 
tion bears  no  premium  in  the  way  of  a  percentage  that 
would  accrue  to  the  profit  of  the  contractor,  as  is  the  case 
with  the  cost  of  field  labor  and  the  material  entering  into 
the  actual  work  of  construction.  It  is  the  correct  procedure 
to  handle  the  accounting  records  entirely  in  the  field,  in 
order  to  keep  the  detail  bookkeeping  work  clear  of  the 
contractor's  permanent  business. 

Methods  of  Financing. — If  the  owner  finances  the  under- 
taking, the  original  amount  advanced  should  be  recorded 
as  a  credit  to  him,  and,  debited  to  the  cash  of  the  disbursing 
agent,  who  acts  as  agent  for  the  owner.  The  owner  deposits 

21 


22    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

this  advance  to  the  credit  of  the  disbursing  agent  in  a  bank 
adjacent  to  the  location  of  the  job,  and  his  agent  signs  all 
checks  drawn  against  this  fund  to  liquidate  vouchers  when 
approved  by  the  contractor.  As  before  stated,  the  dis- 
bursement for  vouchers,  plus  the  percentage  on  cost  for 
contractor's  profit,  is  the  amount  to  be  collected  from  the 
owner;  the  owner's  check  for  this  amount  is  drawn  to  the 
order  of  the  disbursing  agent  who  debits  Cash  and  credits 
Owner  when  he  deposits  it.  The  agent  then  draws  a  check 
to  the  order  of  the  contractor  for  the  amount  of  the  per- 
centage included  in  the  reimbursement.  This  operation 
reduces  the  agent's  cash  to  the  original  amount  of  the  fund. 
The  owner's  account  of  credit  for  all  cash  received,  less  the 
fund  amount,  will  then  equal  the  total  cost  to  date  of  the 
contract  so  far  as  actual  disbursements  are  concerned,  and 
exclusive  of  "costs  in,"  which  may  be  unpaid.  Such  a  fund 
is  an  imprest  fund  in  its  nature  and  is  only  charged  and 
credited  to  the  extent  that  it  may  be  increased  or  decreased 
from  the  original  amount  advanced.  On  the  completion  of 
the  contract  when  all  costs  have  been  paid  and  correspond- 
ingly reimbursed  by  the  owner,  the  fund  is  closed  out  by 
the  agent  drawing  a  check  to  the  order  of  the  owner  for  its 
amount. 

If  the  contractor  finances  the  undertaking,  he  merely 
debits  the  disbursing  agent  for  the  amount  of  the  check 
and  credits  Cash  on  his  general  books,  and  the  disbursing 
agent  debits  the  bank  (as  the  funds  are  deposited  in  his 
name)  and  credits  the  contractor  for  its  amount.  A 
statement  of  the  amount  disbursed  by  the  disbursing  agent 
for  approved  vouchers  of  the  contractor,  plus  the  per 
centage  on  cost,  is  then  sent  to  the  owner.  The  owner 
draws  a  check  to  the  order  of  the  contractor  for  the  amount, 
which  is  sent  to  the  contractor  either  directly  or  through  the 
disbursing  agent.  The  receipt  of  this  check  from  the  owner 
may  be  recorded  on  the  books  of  the  contractor  in  either 
one  of  two  ways: 

If  under  the  first  method  he  keeps  a  record  of  the  cost 


COST  PLUS  CONTRACTS  23 

and  income  on  his  general  books  for  the  purpose  of  showing 
the  volume  of  business  performed,  he  should  make  the 
following  entries,  supposititious  figures  being  given: 

Debit:  Cash $110,000 

Credit:  Accounts  Receivable $110,000 

Cost  of  $100,000  +  10  per  cent  profit  as  per 
sheet  received  C.  402. 

Debit:  Accounts  Receivable $110,000 

Credit:  Earned  Contract  Sales $110,000 

Cost  and  Profit  on  C.  402  as  per  reimburse- 
ment. 

Debit:  Accrued  Contract  Cost $100,000 

Credit:  Disbursing  Agent $100,000 

Approved  voucher  of  cost  as  paid  by  agent 
on  C.  402. 

Debit:  Disbursing  Agent $100,000 

Credit:  Cash $100,000 

Reimbursement  to  agent  for  vouchers  liqui- 
dated C.  402. 

After  these  entries  are  made  the  books  show  a  profit  to 

the   contractor  of  $10,000  equal  to  the  percentage  paid. 

Under  the  second  method  only  two  entries  are  required: 

Debit:  Cash $110,000 

Credit:  Disbursing  Agent $100,000 

Profit  on  Sales $10,000 

Debit:  Disbursing  Agent $100,000 

Credit:  Cash $100,000 

By  the  latter  method  the  only  record  or  the  contractors 
general  books  of  a  permanent  nature  is  the  amount  of 
profit  earned,  and  the  field  record  of  the  disbursing  agent 
only  shows  actual  cost  equal  to  $100,000,  the  percentage 
of  $10,000  being  ignored.  The  books  of  the  owner,  however 
show  the  total  amount  of  the  check  for  the  construction 
cost  as  an  investment.  An  estimate  should  be  made  by 
the  disbursing  agent  and  forwarded  to  the  owner  or  person 
financing  the  cost  of  operation  in  advance  of  the  time  when 
payments  are  to  be  made,  so  that  the  agent  may  be  provided 
with  ample  funds  to  meet  payrolls,  payments  to  vendors, 


24    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

or  any  recurring  expenditures  in  connection  with  the  cost 
of  the  work. 

Interest  on  Capital  Investment. — A  debatable  question 
is  whether  or  not  the  contractor  is  entitled  to  interest  from 
the  owner  should  the  contractor  be  the  party  who  finances 
the  work.  It  seems  reasonable  to  argue  that  the  owner 
should  pay  the  interest  on  the  face  amount  for  the  time  in- 
volved on  bank  loans  at  least,  as  this  is  the  burden  the  con- 
tractor has  to  assume,  and  is  without  question  a  part  of  the 
actual  cost.  It  is  as  fair  for  one  party  as  the  other,  for  the 
reason  that  money  is  equally  valuable  on  the  basis  of  interest 
to  both,  and  if  the  interest  on  such  funds  is  to  be  used  by 
another  party  without  charge,  the  party  so  privileged  gains 
what  the  other  loses;  therefore,  if  the  contractor  advances 
the  funds  he  seems  entitled  to  collect  interest  from  the  owner 
at  bank  rates  for  the  time  his  capital  is  tied  up. 

Illustration  of  Cost  Plus  Operation. — The  author  knows 
of  a  contracting  company  which  operates  under  this  form 
of  contract  only,  and  finances  every  contract  taken.  The 
company  advances  the  fund  to  be  used  to  liquidate  approved 
vouchers,  and  each  advance  is  deposited  in  a  separate  bank 
account  which  is  known  by  the  number  given  to  the 
contract.  Each  account  so  incorporated  is  drawn  on  by 
checks  of  a  numbered  series  bearing  the  same  number  as 
the  contract,  thus  distinguishing  the  cash  record  of  receipts 
and  disbursements  for  a  specific  contract.  The  fund,  plus 
the  reimbursements  from  the  owner,  when  reduced  by  the 
withdrawals  for  payment  of  approved  vouchers,  and  the 
amount  of  percentage  due  the  contractor,  leaves  a  balance 
which  is  the  amount  of  the  fund.  The  advantages  of  this 
system  lie  in  the  fact  that  it  prevents  any  confusion  of 
receipts  or  disbursements  pertaining  to  the  contract  by 
a  translocation  of  charges  and  credits.  The  check  paid 
the  contractor  for  the  percentage,  as  drawn  from  these 
different  funds,  is  entered  on  the  Cash  Record  of  his 
general  books  as  a  debit,  and  credited  to  Owner  in  the 
Customer  Ledger.  When  such  a  payment  is  deposited 


COST  PLUS  CONTRACTS  25 

in  the  bank  controlling  the  general  funds  of  the  contractor, 
a  journal  entry  is  made  as  follows: 

Debit:  Accounts  Receivable  "Owner" 
Credit :  Profit  on  Contract 

For  percentage  on  C.  402  as  per  check  from  402  fund, 
No.  126. 

This  record  may  be  considered  as  the  entry  of  the  net 
sale  or  income  from  the  contract. 

Material  Supplied  from  Contractor's  Stock. — At  times 
material  for  the  contract  is  supplied  from  the  contractor's 
own  stock.  In  such  an  event,  the  contractor  must  bill 
the  owner  like  an  ordinary  vendor  on  a  cost  basis  and  under 
the  conditions  of  the  percentage  agreed  upon  in  the  contract. 
The  question  then  arises,  should  the  prices  be  at  cost  or 
market.  If  the  latter  price  is  higher,  the  contractor,  in 
the  opinion  of  the  author,  should  charge  the  owner  on  that 
basis.  In  support  of  this  contention  suppose  that  the 
price  paid  by  the  contractor  for  the  material  is  below 
market  price  at  the  time  of  sale  to  the  owner,  and  that  the 
contractor  has  had  the  material  in  stock  for  several  months 
antedating  the  billing  time  to  the  owner;  then  if  the  market 
price  is  higher,  and  is  the  one  taken,  the  difference  between 
his  cost  and  the  market  price,  would  compensate  the  con- 
tractor for  interest  on  his  investment  in  the  inventory  for 
the  period  between  purchase  and  sale.  On  the  other  hand 
should  the  cost  to  the  contractor  have  been  higher  than 
the  market  price,  the  former  price  should  be  taken.  In 
the  first  instance  mentioned  above,  the  owner  is  being 
charged  at  market,  which  is  all  that  would  be  expected 
by  him;  but  in  the  latter  case  the  contractor  is  entitled  to 
some  protection  from  loss  and  he  therefore  sells  the  material 
to  the  owner  at  cost. 

Pricing  of  Contractor's  Materials. — Any  bills  rendered 
to  the  owner  for  materials  supplied  from  the  contractors' 
stock  on  hand  should  not  be  credited  to  Sales  account  on 
the  books  of  the  general  contractor,  as  the  materials  are 


26    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

supplied  to  the  owner  on  a  cost  plus  basis.  It  follows 
that  the  amount  of  the  bill  must  be  a  direct  credit  to  the 
contractor's  stock  on  hand,  the  same  as  though  it  were 
materials  issued  on  a  store  room  order.  Since  book  inven- 
tories are  charged  and  credited  at  the  cost  prices,  if  the 
material  is  billed  to  the  owner  at  another  price  than  actual 
cost  as  carried  on  the  inventory,  the  difference  should  be 
adjusted  by  a  charge  or  credit  to  a  temporary  account 
which  may  be  called  " Inventory  Price  Fluctuations" 
the  balance  of  which  is  closed  each  fiscal  period  into  Profit 
and  Loss. 

By  this  procedure  the  perpetual  inventory  effect  of  the 
stores  record  is  not  disturbed,  for  the  reason  that  any 
charges  or  credits  to  the  inventory  account  over  or  under 
the  cost,  are  immediately  equalized  to  show  that  the 
balance  on  hand  is  the  true  inventory  at  cost.  As  before 
stated,  if  market  price  is  higher  than  cost,  market  is  billed 
to  the  owner,  and  the  inventory  must  be  charged  for  the 
difference;  should  part  of  the  amount  billed  be  returned  by 
the  owner,  it  would  be  credited  to  him  at  the  same  price  as 
billed,  and  charged  back  to  inventory  at  its  original  cost, 
at  which  time  "Inventory  Price  Fluctuations"  would  be 
charged  with  the  difference  between  cost  and  market. 

For  example,  if  the  stock  of  the  contractor  is  supplied 
to  the  owner  at  the  market  price,  which,  let  us  assume,  is 
10  per  cent  above  inventory  or  cost  price,  the  record  on  the 
books  of  the  general  contractor  would  require  the  following 
entries : 

Debit:  Owner $220.00 

Credit:  Inventory $220.00 

Cost  of  material  200  +  10  per  cent 

Debit:  Inventory $20.00 

Credit :  Inventory  Price  Fluctuations $20.00 

To  adjust  the  cost  of  materials  sold  to  that  of 
market  prices. 

Suppose  part  of  the  material  equal  to  10  per  cent  of 


COS T  PL  US  CON TRA  CTS  27 

the  bill  is  returned  by  the  owner.     The  entries  on  the 
contractor's  books  would  be: 

Debit:  Inventory 20.00 

Inventory  Price  Fluctuations 2.00 

Credit:  Owner 22.00 

Charge  back  at  cost  and  profit  adjustment 
for  return  of  material  billed  to  owner  at  market 
price  for  10  per  cent  above  cost. 

Effect  of  Rising  Prices. — In  cost  plus  contracts  the 
owner  shoulders  the  burden  of  all  contingencies  and  the 
contractor's  only  worry,  is  to  avoid  any  irregularity  of 
performance  that  would  justify  any  claim  against  him 
resulting  in  a  curtailment  of  the  profits  anticipated  under 
the  original  agreement.  Considerable  advantages  often 
accrue  to  the  benefit  of  the  contractor  in  a  contract  of 
this  class  especially  when  prices  are  rising:  For  example, 
suppose  a  contract  is  awarded  on  a  cost,  plus  5  per  cent, 
basis  and  the  official  estimate  of  the  cost  to  complete  is 
$1,000,000,  with  a  time  limit  of  2  years;  assume  that  such 
conditions  as  those  of  the  World  War  arise,  soon  after 
starting  time,  and  that  costs  up  to  that  time  for  labor, 
material  and  overhead  have  been  in  conformity  with  the 
estimate;  likewise  progress  as  shown  by  the  report  of  the 
cost  engineer  by  units  and  percentage  has  been  in  strict 
accordance  with  the  expectations  under  the  contract.  If 
at  this  point,  vendors  commence  to  bill  lumber  at  $45  per 
M  feet  which  was  estimated  to  cost  $15  per  M  feet,  if 
bricks  are  billed  at  $22  which  were  to  cost  $9  per  M,  if 
labor  jumps  to  50  per  cent  above  that  estimated,  etc., 
what  is  the  result?  The  estimate  has  to  be  revised  to 
correspond  to  the  increased  costs. 

If  the  work  is  so  important  that  it  cannot  be  abandoned, 
and  it  is  decided  to  finish  at  any  cost,  for  the  purpose  of 
demonstration  let  us  assume  an  increase  in  cost  of  100  per 
cent  and  that  the  percentage  to  the  contractor  is  5  per  cent. 
Therefore  instead  of  getting  5  per  cent  on  $1,000,000,  the 
original  estimate,  he  gets  it  on  $2,000,000,  which  increases 


28    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

his  profit  to  $100,000  instead  of  $50,000.  The  contractor 
does  no  more  work,  yet  he  is  paid  twice  the  compensation 
the  owner  thought  to  be  ample  under  the  original  agreement. 
As  it  seems  to  the  author,  the  contractor  is  paid  a  bonus 
of  100  per  cent  for  the  penalty  inflicted  on  the  owner, 
occasioned  by  increased  prices  over  those  submitted— 
contingency  unforseen  at  the  time  of  allotting  the  contracct. 
Equitable  Adjustment  of  Percentage  Rate. — To  protect 
the  o\vner  against  paying  unfair  compensation  in  excess 
of  that  to  which  the  contractor  is  entitled,  a  proportion  of 
the  percentage  should  be  reserved  by  the  owner  until  a 
final  payment  is  made.  This  could  be  done  by  the  owner 
paying,  say,  three-fifths  and  reserving  two-fifths  of  the 
rate  during  the  process  of  construction.  The  amount  of 
cost  on  which  the  contractor  could  collect  the  full  rate 
might  be  arranged  at  5  per  cent  above  the  cost  estimated. 
This  arrangement  would  be  an  upset  limit  to  the  profit 
of  the  contractor,  and  to  make  the  contract  attractive  the 
owner  could  agree  to  pay,  say,  25  per  cent  of  the  amount 
saved  under  the  cost  estimated.  The  incentive  to  the 
contractor  under  such  a  contract  can  be  illustrated  by  the 
following  figures  : 

1.  The  contract  is  allotted  at  an  estimate  cost  of §2,000,000 

The  cost  at  finish  is 1,900,000 


The  saving  to  the  estimate  is $100,000 

The  percentage  to  the  contractor  is. . .   1,900,000  X  05  =     95,000 
The  bonus  for  saving  is 100,000X25=     25,000 


Total  profit  paid  to  contractor $120,000 

2.  The  contract  is  allotted  at  an  estimated  cost  of  $2,000,- 
000,  but  results  in  a  cost  of  $2,200,000.  As  the  upset  limit 
of  cost  which  is  subject  to  the  5  per  cent  profit  is  $2,000,000 
X  105  =  $2,100,000,  the  profit  paid  to  the  contractor  is 
$2,100,000  X  .05  =  $105,000.  Thus,  when  we  compare 
the  two  results  there  would  be  a  gain  to  the  contractor  of 
$120,000  -  $105,000  =  $15,000,  if  there  is  a  saving  to 


COST  PLUS  CONTRACTS  29 

the  owner  under  the  estimate  instead  of  an  increase  of 
cost  over  the  limit  agreed,  equal  in  both  instances  to 
$100,000. 

When  a  contract  is  let  under  the  above  condition,  the 
saving  to  the  owner  should  be  the  paramount  object  with 
the  contractor,  as  the  most  he  can  collect  is  5  per  cent  on 
the  5  per  cent  excess  cost,  as  estimated,  in  addition  to 
5  per  cent  on  the  estimated  cost.  Whereas  under  the  offer 
of  a  bonus  of  25  per  cent  of  any  saving  on  the  estimated 
cost,  he  gets  an  increased  profit  in  the  proportion  that  5 
is  to  25,  or  equal  to  five  times  the  percentage  agreed  upon. 
If  the  saving  is  $200,000  the  contractor  gets  $200,000  X 
25  =  $50,000,  or  a  bonus  of  25  per  cent. 

Anticipated  earning  at  5  per  cent 

§2,000,000  X  .05  =  $100,000 
Actual  earning  at  5  per  cent 

1,800,000  X  .05  =      90,000        90,000  Percentage  on  cost 


Realized  percentage  and  bonus $140,000  Total  Profit 

Unrealized  percentage $  10,000  Loss 

The  above  figures  show  that  he  loses  5  per  cent  and  gains  25 
per  cent  on  $200,000,  or  $50,000  -  $10,000  =  $40,000  more 
than  was  expected.  This  answers  the  question,  what  is  the 
incentive  to  save  in  the  cost  to  the  owner  by  performing 
at  a  cost  under  the  estimate? 

Such  a  contract  is  similar  to  that  of  a  fixed  fee  contract 
in  so  far  as  it  is  a  protection  against  excess  costs  to  the 
owner. 

In  the  operation  of  cost  plus  contracts  the  fund  method 
previously  referred  to  will  be  admitted  to  be  the  only  prac- 
ticable plan  when  it  is  realized  that  the  cost  accounting  is 
all  done  in  the  field,  from  duplicate  records  of  which  the 
original  goes  to  the  owner,  in  order  that  he  may  reimbures 
the  contractor.  The  duplicate  remains  with  the  contractor 
and  constitutes  his  field  record.  The  fact  should  be  noted 
that  the  fund  would  have  to  be  higher  at  the  peak  of  the 
work  than  in  its  early  or  later  days;  but  it  is  easy  to  forecast 


30    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

expenditures  for  short  periods,  so  that  the  fund  may  provide 
at  least  for  current  weekly  reimbursements.  The  only 
account  necessary  on  the  books  of  the  general  contractor 
would  be  one  with  the  disbursing  agent  for  the  original 
amount,  plus  any  increase  and  minus  any  decrease  of  the 
fund  and  the  credit  to  Accounts  Receivable  for  the  per- 
centage collected.  All  field  stationery  should  be  adapted 
for  use  only  with  each  contract,  that  is,  all  purchase  orders, 
invoices  from  vendors,  store  room  orders,  payrolls,  vouchers, 
checks  on  bank,  etc.,  should  contain  a  complete  series  of 
numbers  from  one  up  to  a  final  number,  beginning  and 
terminating  with  the  start  and  completion  of  the  work. 


CHAPTER  IV 

THE  FINANCIAL  ACCOUNTS  AND  RECORDS 

The  General  Ledger. — While  the  profit  or  loss  on  every 
job  or  contract  is  a  matter  of  interest  to  the  contractor 
the  tiling  of  greatest  moment  to  him  is  to  know  how  his 
business  stands  as  a  whole.  What,  for  instance,  are  the 
total  profits  earned  to  date  ?  What  is  the  amount  of  accrued 
earnings,  the  accounts  receivable  and  payable,  and  how 
does  his  business  stand  when  the  accounts  are  closed  as 
compared  with  its  condition  at  the  end  of  the  former  fiscal 
period?  The  book  which  summarizes  this  information  is 
the  General  Ledger.  Therein  are  classified  and  grouped  in 
condensed  form  the  results  of  all  business  transactions. 

The  postings  to  the  General  Ledger  are  taken  from  the 
footings  of  the  detail  entries  in  (1)  the  "General  Ledger" 
column  of  the  Cash  Record,  the  ruling  of  which  will  be 
explained  later  and  from  (2)  the  General  Journal  the  func- 
tion of  which  is  at  the  end  of  each  month  to  frame  into  a 
journal  entry  the  control  figures  derived  from  auxiliary 
or  subsidiary  books  for  posting  to  the  General  ledger 
control  accounts.  Thus  all  the  avenues  of  the  accounting 
system  finally  lead  to  the  General  Ledger  which  contains 
the  classified  statement  of  all  transactions  summarized  in 
the  journals  and  subsidiary  books  under  such  heads  as 
Cash,  Accounts  Receivable,  Accounts  Payable,  Store  Room, 
General  Expense,  Sales,  Contract  Cost,  Jobbing  Cost  and 
so  on.  A  list  of  the  general  ledger  accounts  with  a  descrip- 
tion of  the  method  of  their  debit  and  credit  will  be  given 
given  in  Chap.  VIII.  As  the  ruling  of  the  General  Ledger 
used  in  a  contractor's  business  does  not  differ  from  the 
standard  ruling,  this  record  requires  no  illustration. 

31 


32    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

General  Journal. — Entries  on  the  General  Journal  are 
taken  from  auxiliary  records  and  are  compiled  on  a  simple 
journal  voucher  form  ruled  as  follows: 


Account  of 

Auxiliary 

Debit 

Credit 

The  General  Journal  is  a  bound  book  ruled  with  12 
Amount  columns  in  debit  and  credit  sets  all  on  both  pages. 
It  is  margined  for  the  date  of  the  entry,  record  of  the 
journal  voucher  number,  and  the  explanation  space  wherein 
are  entered  the  names  of  the  accounts  to  be  debited  and 
credited.  The  distribution  of  the  amounts  to  be  debited 
and  credited  is  made  to  the  remaining  12  distribution 
columns  each  of  which  is  ruled  to  show  either  debit  or 
credit  entries  and  the  headings  of  which  are  as  follows: 

1.  General  Ledger 

2.  Accounts  Payable 

3.  Accounts  Receivable 

4.  Accrued  Contract  Cost 

5.  Contract  Sales 

6.  Jobbing  Cost 

7.  Jobbing  Sales 

8.  Interest  and  Discount 

9.  Store  Room 

10.  General  Expense 

11.  Advances 

12.  Sundries 


COST  PLUS  CONTRACTS 


33 


The  form  follows : 

For  the  clear  understanding  of  the  ex- 
planatory matter  to  follow  it  will  be  of 
assistance  to  make  a  rough  sketch  of  the 
journal  columns  entering  the  number  and 
heading  in  each  case. 

In  the  General  Journal  is  kept  a  record 
of  the  control  amounts  assembled  in  (1) 
the  Figure  Analysis  Book  (to  be  describ- 
ed in  the  following  chapter),  (2)  the 
control  columns  of  the  Cash  Record,  and 
(3)  such  other  items  of  charge  and  credit 
as  cannot  properly  be  incorporated  among 
the  entries  in  the  two  above  named  books. 
The  footings  of  the  journal  columns  2  to 
12  inclusive  (as  numbered  above)  and  the 
detail  of  Column  I,  supplemented  by  the 
totals  of  columns  4  and  13  of  the  Cash 
Record,  constitute  all  the  entries  made  in 
the  General  Ledger  each  month. 

The  method  of  operation  of  this  book 
can  best  be  demonstrated  by  presenting 
below  a  number  of  journal  entries,  giving 
the  number  of  the  debit  column  on 
the  left  hand  side  and  the  number  of 
the  offsetting  credit  column  on  the  right 
hand  side. 

The  first  entry  constitutes  the  journali- 
zation of  the  total  cash  disbursements  for 
the  month  which  are  covered  by  the  entry 
in  the  explanatory  column  of  "  Sundries  to 
Sundries"  and  the  distribution  of  the 
total  disbursements  to  the  columns  enu- 
merated below: 


! 

j 

1 

.^ 

1 

<  < 

—  • 

| 

lli 

II; 

1 

1 
m 

1 

l< 

r> 

; 

z!  . 

c 

« 

(0 

•«' 

1 

•O  X 
"*          ( 

!•* 

fci 

i 

o'^  " 

•*    < 

J 

| 

ll< 

peg  " 

Ml 

: 

tz  c 

1 

*\ 

•* 

. 

:     ; 
1s'  - 

3    t 

B 

fa  . 

1 

&t 

M 

ly  . 

"i 

M 

3    ^ 

' 

| 

5 

3 

4  . 

34    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Sundries 

To  Sundries 
Debit  Col.          Debit:  Credit: 

1         Cash  Receipts  Cash  Disbursements  with  total 

8         Interest  and  Discount 
1         General  Ledger 
11         Advances 

1  Payroll  and  Expenses 

2  Accounts  Payable 

3  Accounts  Receivable 

The  remaining  entries  are  all  taken  from  the  footings  of  the 
Figure  Analysis  Book  and  the  study  of  these  entries  in 
combination  with  the  explanation  of  this  book  in  the 
following  chapter  will  make  clear  the  method  of  compiling 
the  controlling  figures  posted  to  the  General  Ledger. 

Debit  Col.  Credit  Col. 

3  Accounts  Receivable 

To  Contract  Sales 5 

Jobbing  Sales 7 

4  Accrued  Contract  Cost 

To  Store  Room 9 

10  General  Expense 

To  Accounts  Payable 2 

6         Accrued  Jobbing  Cost 
4         Accrued  Contract  Cost 

To  Accounts  Payable 2 

11  Advances 

To  Cash 1 

1  Advance  Contract  Cost 

To  Accounts  Payable 2 

4  Accrued  Contract  Cost 

To  Advance  Contract  Cost . . . .  - 1 

1  Notes  Receivable 

To  Accounts  Receivable 3 

2  Accounts  Payable 

To  Notes  Payable 1 

1         Notes  Receivable  Discounted 

To  Notes  Receivable 1 

10         General  Expense 

To  Advances 11 

Footings  are  carried  forward  to  the  end  of  each  month, 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS  35 

only.  The  totals  of  the  debit  and  credit  in  Columns  2 
to  12,  when  added  to  the  debit  and  credit  of  Column  1, 
should  equal. 

Auxiliary  Records. — The  auxiliary  records  in  which  the 
detailed  figures  are  assembled  for  the  purpose  of  furnishing 
the  control  figures  for  entry  in  the  general  journal  prepara- 
tory to  posting  to  the  general  ledger  consist  of  the  following 
books  and  records: 

1.  Figure  Analysis  Book  6.  Jobbing  Work  Ledger  (Cost 

2.  Cash  Record  and  Income) 

3.  Accounts  Receivable  Ledger  7.  Analysis  of  General  Expense 

4.  Accounts  Payable  Ledger  8.  Deferred  Charges  Record 

5.  Cumulative  Contract  Ledger  9.  Store  Room  Ledger 
(Cost  and  Income) 

Of  the  above  records  and  the  keystone  of  the  subsidiary 
arch,  as  it  were,  is  the  Figure  Analysis  Book.  This  record 
is  divided  into  sections  to  classify  the  transactions  recorded 
on  vendors's  invoices,  foremen's  expense  reports,  payroll 
summaries,  store  room  orders  and  other  original  papers. 
After  the  classification  of  original  transactions  in  the  Figure 
Analysis  Book,  the  figures  for  the  monthly  or  other  cost 
period  are  posted  in  classified  detail  in  the  other  auxiliary 
records  (with  the  exception  of  the  Cash  Record)  and  in  total 
to  the  proper  General  Ledger  account.  Thus  the  Figure 
Analysis  book,  while  it  compiles  the  control  figures,  at  the 
same  time  furnishes  the  original  record  of  the  internal 
distribution  of  expenditures  and  assembles  the  totals  of  the 
various  items  to  be  charged  to  the  accounts  receivable  and 
sales  accounts  in  detail  and  in  total  to  the  Accounts  Receiv- 
able and  Sales  controlling  accounts  on  the  General  Ledger. 

The  Cash  Record. — In  the  control  columns  of  the  Cash 
Record  are  entered  the  duplicate  amounts  of  every  receipt 
and  disbursement  by  check  thus  furnishing  the  contra- 
control  figures  for  cash  receipts  and  disbursements.  The 
two  pages  of  the  record  are  ruled  with  17  columns  in  all, 
four  of  which,  in  the  center  of  the  two  pages,  are  devoted 
to  the  usual  explanatory  details  of  date,  payor  or  payee, 


36    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

check  ( i/ )  mark,  and  disbursement  check  number.  The 
ruling  is  illustrated  of  this  and  the  facing  page,  and  the 
headings  are  numbered  consecutively  as  a  convenience  for 
reference  in  the  discussion  to  follow. 


CASH  RECORD.     MONTH  OF 


19 


Credit 

Debit 

Payer 

Date 

and 

Accta. 
Rec. 

Accta. 
Pay. 

Advances 

Gen. 
Led. 

Int.  & 
Disct. 

Receipts 

Payee 

9       10 


ia 


14 


15 


1(1 


17 


IS 


20 


Credit 

Debit 

Bank 

Ck. 

No. 

Dis- 
burse- 
ments 

Int.  & 
Disct. 

Gen. 
Led. 

Ad- 
vances 

Payroll 
& 
Expense 

Accts. 
Pay. 

Accts. 
Rec. 

De- 
posits 

With- 
drawals 

Bal- 
ance 

One 

set  for 

~v 

•%--W%/^-'"* 

.^V^^V^^^X. 

'N^V^^^^'V. 

s~^r**^**^~> 
•*^^*±S^S^ 

-w^^w^^^. 

~^^^^V^S^>w~v. 

^-*^^"\^^^-\. 

~-^"^^V^-' 

•x-^^^^-«w^^- 
s-**~^>^S*~S^~, 

each 
-v^^w^*-^ 

bank 

'^^^^'N^Nw-^N. 

:ccc; 

FORM   1. — Cash  Book  Ruling. 

At  the  end  of  the  month  the  total  of  the  auxiliary 
columns  1  to  4  on  the  debit  side,  as  numbered  over  the 
heading,  are  posted  to  the  credit  of  the  control  account 
named  therein,  with  the  exception  of  the  column  headed 
General  Ledger.  Similarly  the  footings  of  the  Columns  13 
to  17  are  posted  to  the  debit  of  the  proper  control  accounts. 
As  all  the  detail  entries  in  the  control  columns  have  been 
posted  to  some  auxiliary  record  at  the  time  of  entry  it  is 
obvious  that  each  footing  of  a  control  column  is  also  the 
footing  of  an  auxiliary  record. 

Use  of  Columns. — Though  the  purpose  of  the  columns  of 
the  Cash  Record  will  be  clear  to  the  reader  with  a  knowledge 
of  the  principles  of  double-entry  bookkeeping  and  the  use 


THE  FINANCIAL  ACCOUNTS  AND  'RECORDS  37 

of  control  accounts,  for  the  sake  of  completeness  the  use  in 
each  case  is  enumerated  below: 

Column    1.  For  gross   amount   collected  from   customer  equal  to  5 
and  6. 

2.  For  checks  returned  and  re-deposited  or  payments  for 

debit  balances  received  from  vendors  or  refunds  of 
over-payments. 

3.  For  cash  returned  heretofore  charged  to  this  account. 

4.  For  any  item  of  cash  gross  or  net  affecting  other  accounts 

than  1,  2  and  3. 

5.  For  any  deductions  of  this  nature  reducing  entries  to 

Columns  1,  2,  3,  and  4  to  6. 

6.  For  balances  of  all  banks,  minus  outstanding  checks  as 

per  cash  book  at  the  end  of  the  previous  month,  and 
the  actual  cash  received  during  the  current  month. 
Columns  1,  2,  3,  4  totals  plus  the  balance  beginning, 
will  equal  the  totals  of  columns  5  and  6. 

7.  For  date  of  receipt  or  disbursement. 

8.  For  showing,  from  whom  received  and  to  whom  paid. 

9.  For  ticking  postings  both  debit  and  credit. 

10.  For  check  number  and  bank  symbol. 

11.  For  amount  of  check  drawn. 

12.  For  any  deductions  of  this  nature  reducing  entries  to 

Columns  13,  14,  15,  16  and  17  to  11. 

13.  For  any  items  of  cash,  gross  or  net  affecting  other  accounts 

than  14,  15,  16  and  17. 

14.  For  cash  advanced  for  traveling,  foremen's  funds,  loans, 

personal,  etc. 

15.  For  clearing  account  for  checks  reimbursing  foremen  and 

in  favor  of  the  local  paymaster. 

16.  For  gross  amount  charged  to  creditors  equal  to  11  and  12. 

17.  For  refunds  of  overpayments  or  payment  of  credit  balances 

on  this  account  or  checks  returned  which  have  been 
heretofore  deposited  and  their  value  taken  up  by  check 
to  bank. 

If  it  is  desired  to  show  the  daily  bank  balance  the  three 
following  additional  columns  are  required : 

18.  For  entry  of  the  balance  of  each  bank  (if  there  are  more 

than  one)  minus  outstanding  checks  as  per  Cash  Book 
at  the  end  of  the  preceding  month,  and  the  amount  of 
each  deposit  made  during  the  current  month. 


38    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

19.  For  checks  drawn  on  each  bank  during  the  current  month. 

20.  For  the  balance  as  shown  by  the  bank  each  day,  which 

is  the  difference  between  the  totals  of  Columns  18  and 
19.  The  balance  as  shown  in  Column  20,  added  to  the 
total  of  Column  11,  should  equal  the  total  of  Column  6. 

Method  of  Proving  Balances. — To  close  the  record  at 
the  end  of  the  month  the  bank  balance  in  Column  20  is 
entered  in  Column  11.  Columns  6  and  11  should  then  be 
equal  and  should  be  ruled  off.  The  totals  of  6  and  11  are 
brought  down  below  this  ruling,  and  the  beginning  balance 
in  Column  6  is  deducted  from  the  total  of  Column  6  brought 
down,  the  reduced  amount  is  the  cash  receipt  or  cash 
debit  for  the  month.  On  the  line  below  is  entered  the 
footing  of  Column  11  at  the  end  of  the  month  and  this 
amount  represents  the  cash  disbursement  or  credit. 
Column  5  is  then  closed  into  6  and  these  amounts  when 
added  should  equal  the  totals  of  Columns  1  to  4  collectively. 
After  this  is  done  Column  12  should  be  closed  into  11  and 
the  totals  of  these  two  amounts  should  equal  the  total  of 
13  to  17  collectively.  A  journal  entry  of  these  control  fig- 
ures may  be  made  in  the  General  Journal  or,  as  is  common- 
ly done,  the  entries  may  be  posted  direct  to  the  General 
Ledger.  The  writer  prefers  the  entries  to  be  passed  through 
the  journal  so  that  this  book  constitutes  a  complete  record 
of  all  General  Ledger  postings. 

The  check  numbers  should  be  governed  by  an  alphabeti- 
cal symbol  designating  the  bank  drawn  on,  and  should 
appear  as  a  prefix  to  the  check  number  entered  in  the 
cash  Record.  By  making  this  provision,  the  checks  can  be 
properly  assigned  to  their  respective  bank  sections. 

Cumulative  Contract  Ledger. — The  Cumulative  Contract 
Ledger  is  a  loose-leaf  record  in  which  one  page  is  allotted 
to  each  contract  for  the  purpose  of  collecting  the  cumulative 
monthly  charges  and  credits.  The  totals  of  these  monthly 
charges  and  credits  furnish  the  control  figures  for  Accounts 
Receivable,  Unearned  Contract  Sales  and  Earned  Contract 
Sales.  The  ruling  of  the  book  is  illustrated  in  Form  2. 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS  39 

The  study  of  the  form  shows  that  the  total  debits  are  divided 
into  expense,  labor,  and  material,  and  that  material  is 
subdivided  into  the  cost  of  that  installed  and  of  that 
delivered  and  waiting  to  be  installed.  In  the  column 
headed  "Credit  Total  Contract  and  Extras"  is  entered  the 
original  contract  price,  plus  orders  for  extra  work  on  all 
Lump  Sum  Contracts.  Between  the  debit  and  credit 
sections  there  are  two  columns  for  memorandum  entries 
of  the  proportion  of  the  contract  earned  and  the  total  yet 
unearned. 

The  proportion  earned  and  subject  to  requisition  is 
determined  by  adding  10  per  cent  or  any  other  appropriate 
percentage  for  profit  to  the  cost  of  the  material  already 
installed  plus  labor  and  expense.  In  the  study  of  the  figures 
it  should  be  noted  that  the  totals  of  the  Earned  and  Un- 
earned Sales  columns  are  equal  to  the  total  contract  price 
plus  extra  orders  and  that  the  "Monthly  Balance"  repre- 
sents the  difference  between  the  "Total  Cost  and  the 
"Total  Contract  and  Extras."  All  entries  which  are 
deductions  are  entered  in  red  ink  and  are  shown  in  the 
illustration  in  bold  faced  type.  When  the  work  is  com- 
pleted and  the  cost  is  all  in,  the  balance  in  the  "Earned 
Sales"  column  is  adjusted  to  equal  the  total  contract  price 
and  the  cost  of  the  extra  orders.  The  actual  cost  deducted 
from  this  total  represents  the  gross  profit  earned. 

The  10  per  cent  addition  to  cost  to  get  the  earned  sales 
accruing  each  month,  is  merely  a  memorandum  figure  to 
measure  the  monthly  sales;  therefore  the  figures  shown  in 
the  "Estimated  Profit"  column  are  not  to  be  journalized 
as  they  have  no  contra  effect.  They  are  merely  put  on 
the  Cumulative  Contract  Ledger  to  show  the  value  at 
which  the  sales  have  been  taken.  The  following  summary 
explains  the  nature  of  the  entries  in  condensed  form: 


40    PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Expense $972 

Labor 28,550 

Materials  Installed 51,610 

Materials  Inventory 1,552 


Toted  Charges 82,684  Control  Debit       $82,684 

Less  Inventory 1,552 


Accrued  Cost 81,132 

Profit  10% 8,113.20 


Earned  Sales 89,245 . 20 

Unearned  Sales 12,072. 80 


Total  Contract  and  Extras $101,318 . 00        Control  Credit  101,318 


Control  Balance  Credit:  $18,634 

Control  Figures. — The  control  figures  furnished  at  the 
end  Of  each  month  form  an  important  feature  of  the  Cumula- 
tive Contract  Ledger.  As  previously  explained  when  a 
lump-sum  contract  is  taken  (and  in  this  discussion  all 
contracts  are  assumed  to  be  of  a  lump  sum  nature  unless 
otherwise  stated),  a  memorandum  entry  is  made  charging 
the  owner  on  the  Accounts  Receivable  Ledger  and  crediting 
Unearned  Contract  Sales  at  the  agreed  price.  These 
entries,  it  should  be  noted,  are  of  a  memorandum  nature. 

At  the  end  of  the  month  an  "Analysis  of  Sales"  is  drawn 
up  in  the  Figure  Analysis  Book  and  the  total  of  all  charges 
for  contracts  of  all  classes  which  have  been  billed,  is  by 
journal  entry  charged  to  Accounts  Receivable  and  credited 
to  Unearned  Contract  Sales  on  the  General  Ledger.  At 
the  end  of  the  month  this  last  account  thus  shows  both  the 
Earned  and  Unearned  Contract  Sales.  After  entering 
the  monthly  memorandum  of  cost  plus  10  per  cent  on  the 
Cumulative  Contract  Ledger  to  all  contracts  of  a  lump 
sum  nature,  these  figures  are  consolidated  writh  the  figures 
shown  in  the  column  headed  Earned  Contract  Sales,  thereby 
arriving  at  the  total  sales  earned  for  the  month.  This 
amount  is  charged  by  journal  entry  to  Unearned  Contract 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS  41 

Sales  and  credited  to  Earned  Contract  Sales,  the  former 
account  now  showing  the  balance  of  the  work  unearned 
on  contracts,  which  is  an  advance  charge  to  Accounts 
Receivable.  This  amount  deducted  from  the  total  of  the 
schedule  of  accounts  due  from  customers,  gives  the  amount 
of  the  sales  due  and  accrued  to  date,  while  the  Earned 
Contract  Sales  account  shows  the  earned  sales  credited  to 
contracts  of  all  classes  for  the  month. 

All  classes  of  contract  other  than  lump  sum  are  handled 
by  billing  the  owner  for  the  "cost  in"  plus  the  profit  agreed 
upon  under  the  contract.  The  total  billed  each  month  is 
debited  to  the  owner's  account  on  the  Accounts  Receivable 
Ledger  and  credited  in  the  Cumulative  Contract  Ledger  to 
the  column  for  Earned  Contract  Sales.  The  remaining 
columns  are  ruled  to  show  the  detail  required  for  the  par- 
ticular kind  of  contract. 

The  Cumulative'  Contract  Ledger  is  a  practical  and  con- 
venient record  and  its  self-proving  arrangement  of  totals 
while  it  insures  accuracy  at  the  same  time  furnishes  a 
condensed  exhibit  of  the  history  of  each  contract  both  as  to 
cost  and  income.  It  is  usually  operated  in  two  books, 
the  current  ledger  containing  live  accounts  and  the  transfer 
ledger  inactive  or  dead  accounts. 

How  inventories  and  profits  are  determined  at  the  end 
of  each  month  on  the  cumulative  Contract  Ledger  resulting 
in  Earned  Sales  for  the  month.  See  Form  2.  The 
material  cost,  laid  and  in  inventory,  as  shown  each  month 
on  the  cumulative  contract  ledger,  is  determined  in  the 
following  manner: 

The  total  charges  to  the  contract  for  materials  each 
month  is  taken  from  the  Figure  Analysis  Book.  These 
totals  are  then  listed  according  to  each  contract.  The 
amount  laid  or  installed  as  reported  by  the  foreman  in  charge 
of  each  contract,  is  then  placed  alongside  these  total 
charges,  and  the  difference  is  either  an  increase,  or  decrease 
of  the  inventory  for  the  first  or  starting  month. 

According  to  the  exhibit  below,   the  total  charge  for 


42     PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


P;H 

o  r1 


g   bs 

a^ 


W  Q 

o  <; 

0  0 

H  K 


A  d  "-1 


S5    3 


5  I 

O    <u 


O 

0 


.2 

1 

o 

$98,600.00 

97,420.00 

8 

to 

CO 

cs 

85,050.00 

75,979.00 

65,550.00 

£ 

"e 

o 

Q 

^ 

8 

88 

88 

88 

88 

88 

8 

1 

•3 
£ 
0 

3JL| 

SIS3 
0 

I 
*» 

IB 

8" 

O   *O 

i 

>O   (N 

1 

CO     -H 

100,513 

J 

1 
(1 

1 

a 

o 
a 
S 

$99,230.00 
1,470.00 

97,755.00 
3,917.00 

93.837.50 
9,100.00 

ss 

IN  id 
x  en 

rf  oo" 
00 

75,687.40 
12,366.00 

63,320.90 

a 

CO 

8 

88 

8  S 

§8 

S2 

gs 

2 

1 

0 

O   iO 
t^    CS 

to  oo 

CO   OS 

CN"  co 

CO   M 

to  os" 

CM   t^ 

0    00 
US    O 
US   Cs" 

cs  oi 

to  us 

s~2 

jr. 

Estimated 
Profit 

6?       °  *> 

0    |    «  .3  J 

8 

d 

88 

o  id 

IN    CO 

S8 

t^  d 

US    00 

«^  to' 

5S 

2,243.60 
1,137,50 

8 

i 

CO 

8 

88 

88 

88 

88 

88 

8 

IIS 

8 

88 

^*    CO 

S   IN 
t^   CO 

il 

US    CO 
IN    O 
CM    « 

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00   I~. 

CO   US 

C: 

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» 

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N    •* 

t^  oo" 

U3    O 

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s 

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8 

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88 

8.8 

88 

8  § 

8 

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8 

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0  6 
tf5    O 

i^   o 

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us  O 

q  os 

IN  e 

us  o 

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8 

88 

88 

88 

88 

88 

8 

S 
o 

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1 

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O   >O 

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t~   IN 

§o 
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88 

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88 

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8 

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88 

88 

88 

8 

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t^  u5 

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2    3     S 

^I'S 

2 
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January  

Total  
February  .... 

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Q        . 

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43 


8 
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8 

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CO 

CN 

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40,263.00 

8 
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CO 
CN 

23,090.00 

18,634.00 

8 

88 

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88 

88 

88 

8 

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13 

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28 

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OJ    CO 

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88 

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CO  O 
CO    •<»< 
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CO  1C 

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652.00 
500.00 

1,152.00 
1,600.00 

2,752.00 
1,300.00 

1,452.00 
700.00 

752.00 
800.00 

1,552.00 

•s 
O 

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8 

88 

88 

88 

88 

88 

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CN    O 
O    CN 

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05   <N 
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m  <N 

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£~ 

00 
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£ 

§ 

88 

88 

88 

88 

88 

8 

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00 

r*    6 
S* 

1-H  1C 

00  t~- 
CO 

CO   CN 

1C    CO 

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00  -H 

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as 

Ob 

.  Forward.  . 

_x 

"3 

•-» 

Total  
August  

Total  
September.  .  . 

Total  
October  

Total  
November.  .  . 

Total  
December.  .  .  . 

"3 
o 

E- 

44  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

material  was  $1000  for  January,  which  was  the  month  oper- 
ations on  the  contract  were  started,  and  $300  was  the  value  of 
the  material  laid.  The  difference  of  $700  is  the  inventory 
starting  the  second  month  above  referred  to.  In  the  fol- 
lowing month,  the  amount  laid,  if  under  the  charges 
for  the  month,  increases  the  inventory  of  the  first  month 
by  the  amount  of  the  difference,  and  if  over,  decreases  it. 

This  segregation  of  the  cost,  makes  possible  the  rendering 
of  a  true  requisition  for  the  actual  value  installed,  and  shows 
at  the  finish  of  the  contract,  the  amount  to  be  either  returned 
to  the  store  room  of  the  contractor,  or  salvaged;  this  value 
is  a  credit  to  the  materials  charged,  thus  reducing  the  book 
cost  to  the  actual  cost. 

The  10  per  cent  added  for  profit  is  taken  on  the  total 
costs,  less  the  amount  of  inventory  increases  or  plus  the 
amount  of  inventory  decrease  as  shown  by  black  or  red 
figure  entries  made  to  the  inventory  section  of  the  account. 

In  October  the  charge  for  materials  is  $10,400  and  the 
report  of  materials  laid  which  was  received  from  the 
foreman,  showed  a  value  of  $11,700.  The  difference  is 
therefore  $1,300  which  is  a  credit  to  the  inventory  of  $2,752 
for  September,  reducing  it  to  $1,452.  The  net  total  cost 
is  $62  +  $3,200  +  $11,700  -  $1,300  =  $13,662.  The 
"cost  in"  for  the  month  is  $13,662  +  $1,300  =  $14,962, 
and  this  latter  amount  is  increased  by  a  charge  for  profit 
of  10  per  cent,  or  $14,962  +  $1,496.20  =  $16,458.20,  which 
is  the  earned  sales  for  the  month  of  October. 

It  will  be  noted  that  all  earned  sales  reduce  the  original 
•contract  price  by  the  actual  earnings  minus  extra  orders 
and  plus  any  deductions.  This  leaves  the  same  balance  as 
the  difference  between  the  original  contract  price  plus 
extra  orders  and  minus  any  deductions,  reduced  by  the 
actual  Earned  Sales.  The  totals  at  the  end  of  each  month, 
will  show  the  condition  of  the  contract  as  follows: 

The  total  cost,  plus  the  profit  reduced  by  the  inventory  will 
equal  the  Earned  Sales,  viz.  $82,684  +  $8,113.20  =  $90,- 
797.20,  $90,797.20  -  $1,552  =  $89,245.20.  This  latter 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS 


45 


amount,  plus  the  Unearned  Sales,  or  $89,245.20  +  $12,072.- 
80  =  $101,318,  the  value  of  the  total  contract  Sales. 
The  reason  for  going  into  the  effect  of  the  entries  made 
to  this  ledger,  is  to  show  how  condensed  they  are,  and  also 
to  make  clear  what  at  first  glance  may  seem  complex,  when 
as  a  fact,  it  is  almost  automatic  in  its  simplicity. 

MONTHLY  ENTRIES  TO  CUMULATIVE  CONTRACT  LEDGER 


Month 

Material  Charges 

Inventory 

Balance 

Total 

Cost 
Laid 

Debit 
Increase 

Credit 
Decrease 

Jan         

1,000 
700 
2,300 
5,050 
6,402 
7,400 
1,720 
3,700 
9,600 
10,400 
1,590 
3,300 

300 
850 
1,600 
5,250 
5,500 
8,200 
2,220 
3,200 
8,000 
11,700 
2,290 
2,500 

700 
700 
902 

500 

1,600 

800 

150 

200 

800 
500 

1,300 
700 

700 
550 
1,250 
1,050 
1,952 
1,152 
652 
1,152 
2,752 
1,452 
752 
1,552 

Feb  

Mar  

Apr      

May  

June        

July  

Aug  . 

Sept    

Oct  

Nov  

Dec 

Total  .    .    . 

53,162 

51,610 
1,552 

Inventory  

Accounts  Receivable  Ledger. — The  Accounts  Receivable 
Ledger  (Form  3)  is  a  loose-leaf  record  with  three  amount 
columns,  two  for  debits  and  the  third  for  the  credit  entry 
of  cash  paid.  The  first  column  is  for  the  entry  of  the 
"Unearned  Sales"  which  comprise  the  value  of  the  original 
contract,  plus  any  extra  order  work.  Any  deductions  to 
negative  these  items  are  entered  in  red  figures.  The  amount 
in  this  column  when  reduced  by  the  estimated  profit,  is 
the  unfinished  cost  to  complete.  The  second  column 
of  the  debits  is  to  receive  the  Earned  Sales,  which  is  the  cost 
for  the  month,  plus  10  per  cent  as  entered  on  the  Cumulative 


46      PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


Lump  Sum  Contract 


PENNA.  RAILROAD  Co. 

CHICAGO,  ILL. 
JOB  PENNA.  R.  R.  STA. 

Retention  10% 


Accounts     Receiv- 
able Record 
No.  1007 
State,  Symbol  "I" 


Sal 

es 

Credi 

t 

Unearned 

Earned 

Date 

Paid 

Amount 

1/31/19 

Price   

$100000  00 

1,540.00 

$  1  540  00 

2/10/19 

Cash 

$  1  386  00 

2/28/19 

Extra  Order  #  1  

120  00 

Transfer  

1,430.00 

1  430  00 

3/7/19 

Cash 

1,287  00 

3/31/19 

Extra  Order  #  2  

70  00 

Transfer  

4,767.50 

4,757.50 

4/8/19 

Cash 

4,281  75 

4/30/19 

Extra  Order  #3   

85  00 

9,020  00 

9  020  00 

5/10/19 

Cash 

8  118  00 

5/31/19 

Extra  Or  er  #  4  

92  00 

10,079.30 

10,079  30 

6/5/19 

Cash 

9,071  37 

6/30/19 

Extra  Order  #  5  

146.00 

Transfer  

11,632.50 

11,632.50 

7/6/19 

Cash 

10,469.25 

7/31/19 

Extra  Order  #  6  

300  00 

7,370  00 

7  370  00 

8/4/19 

Cash 

6  633  00 

8/31/19 

Extra  Order  #  7  

220  00 

Transfer          .    .    . 

7,964.00 

7,964  00 

9/7/19 

Cash 

7  167  60 

9/30/19 

Extra  Order  f  8  

92.00 

Transfer  

12,952.50 

12,952.50 

10/4/19 

Cash 

11,657  25 

10/31/19 

Extra  Order  #  9  

110  00 

Transfer 

15,028.20 

15,028  20 

11/7/19 

Cash 

13  525  38 

11/30/19 

Extra  Order  #10  

240  00 

Transfer  

4,247.10 

4,247.10 

12/5/19 

Cash 

3,822  39 

12/31/19 

Extra  Order  #11. 

27  00 

Transfer  

4,931.30 

4,931.30 

1/6/20 

Cash 

4,438  17 

10,365.60      90,952.40 

C  <fe  Ex $101,318.00 

Less  Profit 9,210.73 


Estimated  Cost $  92,107.27 

Cost  in  $90,952.40  -4-1.10  =       82,684.00 


Estimated  cost  to  finish $     9,423.27 

FORM  3. — Accounts  Receivable  Lump  Sum  Contracts. 


81,857.16 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS  47 

Contract  Ledger.  This  amount  is  deducted  in  red  figures 
from  the  total  debit  in  column  number  one.  The  amount 
of  the  footing  in  both  debit  columns  when  added  together 
will  then  equal  the  total  amount  contracted  for;  this  amount 
reduced  by  the  estimated  gross  profit  (conservatively  10 
per  cent)  will  give  the  estimated  direct  cost  of  the  whole 
contract.  The  balance  of  this  account  (if  all  requisitions 
are  paid),  will  equal  the  retention,  or  more  explicitly,  the  total 
of  the  accrued  column  (No.  2  debit)  will  equal  the  cash 
paid,  plus  the  retention.  Finally  when  the  retention  is 
paid  at  the  completion  of  the  contract,  or  when  final 
payment  is  made,  columns  No.  2  and  3  will  equal. 

This  method  of  keeping  the  accounts  for  lump  sum  work, 
facilitates  making  out  the  requisitions  for  the  amounts  due 
each  month.  At  a  glance  the  ledger  sheet  shows  the  original 
contract  plus  the  total  extra  work,  and  this  minus  deduc- 
tions allowed  shows  the  total  amount  contracted  for  to 
date.  Against  this  is  the  amount  due,  which  is  the  accrued 
sales  to  date  in  Column  2 — minus  the  retention.  From 
this  amount  the  cash  paid  to  date  is  deducted  leaving  the 
balance  due  for  current  requisition. 

In  the  calculation  shown  at  the  foot  of  the  form,  for  the 
purpose  of  showing  the  estimated  cost  to  date  and  the  esti- 
mated cost  to  finish,  the  estimated  cost  is  determined  by 
deducting  from  the  total  contract  and  extra  order  figure 
the  estimated  profit,  which  profit  is  determined  by  dividing 
the  first  figure  by  1.10. 

Accounts  Receivable  for  Other  Than  Lump  Sum  Con- 
tracts.— The  same  ledger  contains  all  the  accounts  with  cus- 
tomers, and  all  the  sheets  are  of  the  same  ruling,  and  the 
accounts  are  inserted  in  the  alphabetical  order  of  the  owner's 
name,  but  bills  for  job  work  and  for  contracts  other  than  lump 
sum  are  recorded  in  a  different  manner  as  shown  on  Form  4. 

In  the  first  debit  column  is  entered  the  estimated  cost  of 
the  work,  as  originally  forecasted.  To  this  is  added  the 
estimated  cost  of  extra  work,  and  this  cost  is  reduced  by  red 
figures  for  the  cancellation  of  any  of  the  work  contracted  for 


48   PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

SEARS  ROEBUCK  Co.  No.  1009 

CHICAGO,  ILL.  .State  "I" 

Time  and  Material,  Profit  12%  %  on  Cost 

Bill  Weekly  Job  Addition  to  Main  Building 

ACCOUNTS  RECEIVABLE  RECORD 


Debit 

Credit 

Date 

Number 

Amount 

Ex. 
Or. 

Bill 

Estimated 
Cost 

Billed 

Date 

Paid 

Amount 

1/31/19 

Contract  

$200,000.00 

2/15/19 

1 

$  7,300.00 

2/22/19 

Cash 

$  7,300.00 

2/18/19 

1 

3,200.00 

2/29/19 

2 

9.4OO.OO 

3/10/19 

Cash 

9,200.00 

3/4/19 

2 

700.00 

3/15/19 

3 

7,500.00 

3/22/19 

Cash 

7,500.00 

3/31/19 

4 

10,200.00 

4/10/19 

Cash 

10,200.00 

4/7/19 

3 

1,200.00 

4/15/19 

5 

11,200.00 

4/22/19 

Cash 

11,200.00 

4/30/19 

6 

9,205.00 

5/10/19 

Cash 

9,205.00 

5/10/19 

4 

600.00 

5/22/19 

Cash 

12,400.00 

5/15/19 

7 

12,400.00 

5/18/19 

5 

177.77 

5/22/19 

2 

205,522.23 

200.00 

5/31/19 

8 

13,900.00 

6/  8/19 

Cash 

13,900.00 

6/15/19 

9 

10,400.00 

6/22/19 

Cash 

10,400.00 

6/30/19 

10 

11,470.00 

102,775.00  91,305.00 

To  get  the  estimated  cost  to  finish. 

The  total  estimated  cost  is 205,522.23 

The  total  billed  is 102,775.00 

Less:  H  for  12H  %  Profit 11,419.44 


Is  the  cost  billed. 


91,355.56 


Estimated  cost  to  finish $114,166.67 

Bill  -10  is  unpaid 


FORM  4. — Accounts  Receivable  Other  Than  Lump  Sum  Contracts. 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS  49 

at  its  estimated  cost.  This  cost  reduced  by  the  cost  in,  as 
shown  on  the  Cumulative  Contract  Ledger,  gives  the  cost 
to  finish. 

Column  2  debit,  is  posted  daily  for  all  bills  rendered  to 
customers,  and  any  credits  for  allowance  on  bills  which 
have  been  posted,  are  negatived  by  red  figures,  entered  in 
the  same  column,  while  Column  3  is  for  cash  payments  only. 
Some  of  these  bills  are  subject  to  a  retention  and  some  are 
not,  but  the  balance  between  Column  2  and  3  is  the  actual 
accrued  value  to  date  in  sales  of  this  class,  and  some  are  due 
while  others  are  part  retention.  It  will  be  readily  seen  that 
the  amount  subject  to  collection  from  customers  is  controlled 
by  two  factors,  one  being  the  periodic  billing  for  cost  in, 
and  the  other  for  cost  in  plus  an  estimated  profit,  which  is 
then  curtailed  by  the  rate  of  retention.  The  amount  of 
the  latter  is  a  deferred  payment  to  the  contractor,  until  the 
acceptance  of  the  work  performed  is  approved  by  the  archi- 
tect and  the  contractor  gets  his  final  payment. 

This  method  of  record  is  essential  to  obtain  figures  in 
connection  with  the  schedules  showing  the  status  of  open 
contracts. 

Accounts  Payable  Ledger. — The  ruling  of  this  ledger  is  of 
the  standard  form  and  therefore  requires  no  illustration. 
In  handling  the  accounts  payable  all  checks  for  withdrawals 
on  the  various  banks  should  be  typewritten,  making  a  carbon 
copy,  on  which  is  entered  the  check  number.  This  avoids 
having  to  enter  the  check  in  the  Cash  Book  immediately,  as 
the  clerk  in  charge  of  that  book  can  assort  the  copies  and 
enter  them  at  a  time  most  convenient.  By  the  use  of  carbon 
copies,  the  checks  are  not  held  up  for  entry,  and  can  be 
mailed  as  soon  as  they  are  signed.  As  the  copies  contain 
the  same  details  of  payment  on  the  back  as  the  check,  they 
are  used  to  check  out  the  items  on  the  Accounts  Payable 
Ledger  covered  by  the  payment.  The  payments  on  an 
active  supplier's  account  are  numbered  consecutively  in 
red  figures.  The  bills  paid  are  checked  on  the  ledger  and 
given  the  same  number  as  the  payment.  The  total  of  the 


50  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

debits  and  credits  checked  should  be  equal  and  the  un- 
checked items  represent  the  balance  unpaid.  This  method 
while  not  new,  is  necessary  when  the  order  of  payment  does 
not  cover  invoices  in  the  order  of  their  entry. 

Filing  Original  Papers. — The  book  keeper  should  be  par- 
ticular about  entering  the  numbering  of  the  vouchers  posted 
to  the  Accounts  Receivable  and  Accounts  Payable  ledgers,  as 
the  filing  numbers  are  constantly  referred  to  when  seeking 
information  in  connection  with  bills  and  invoices. 

Charge  and  credit  vouchers  should  not  be  filed  in  the 
same  folder.  When  a  purchase  order  is  filled  by  more  than 
one  delivery,  and  an  invoice  is  rendered  for  each  delivery, 
they  should  be  filed  together,  the  last  date  underneath. 
As  each  box  file  governs  a  contract  and  bears  its  number, 
the  first  order  for  material  to  be  used  in  connection  with  a 
job  is  number  1,  and  orders  are  issued  consecutively.  The 
box  file  is  an  instantaneous  reference  for  information 
regarding  an  order.  Each  file  has  a  capacity  of  about  500 
invoices,  and  on  small  contracts,  where  the  invoices  run 
about  one  or  two  hundred  to  the  job,  a  box  may  be  used 
for  two  or  more  contracts.  Correspondence  between  con- 
tractor and  owner  should  be  filed  in  a  folder  bearing  the 
contract  or  job  number  of  the  customer,  and  the  query  and 
reply  should  be  attached  to  each  other. 

All  original  copies  of  extra  orders  should  be  attached  on 
acceptance  to  the  original  contract  and  filed  in  numerical 
order  of  issue.  A  good  way  to  keep  these  records  is  to  place 
them  in  a  folder  large  enough  to  accommodate  the  contract 
form. 

Schedule  of  Unfinished  Contracts. — This  schedule  (see 
Form  16,  pages  142  and  143),  is  made  up  from  the  Cumulative 
Contract  and  Accounts  Receivable  Ledgers,  and  is  ruled  with 
columns  headed  as  follows : 

1.  Number  of  contract 

2.  Name  of  customer 

3.  Location  of  customer 

4.  Three  divisions  of  direct  cost  (expense,  labor  and  material) 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS  51 

5.  Total  of  those  three  costs. 

6.  Total  amount  due  from  customer  on  lump  sum  work 

7.  Total  amount  billed  to  customer  on  other  than  lump  sum  work 

8.  Total  amount  unearned  on  lump  sum  work 

9.  Total  cash  collected  to  date  on  these  contracts 

10.  &  11.  Total  estimated  cost  to  finish  the  above  contracts 

Columns  4  and  5  give  a  record  of  the  total  cost  in,  on 
each  contract. 

Columns  6  and  7  record  the  total  sales  earned  as  shown  on 
the  Cumulative  Contract  Ledger.  Column  8  is  taken  from 
the  same  book.  Column  9  is  derived  from  the  Accounts 
Receivable  Ledger.  Column  10  is  the  contract  price  divided 
by  1.10,  which  approximate  cost,  when  reduced  by  the  cost 
in  column  5,  gives  the  estimated  cost  to  finish.  Column  11, 
is  the  estimated  cost  to  finish,  which  when  increased  by  the 
cost  shown  in  column  5,  gives  the  estimated  cost  of  the 
whole  contract  as  determined  on  its  acceptance,  and  noted 
on  the  customer's  account  in  the  Accounts  Receivable 
Ledger. 

The  total  of  all  costs  in  Column  5,  less  the  cash  collected 
to  date  in  Column  9,  shows  the  net  investment  of  the  con- 
tractor to  date  in  unfinished  contracts.  The  totals  of 
Columns  6  and  7  collectively  constitute  the  total  sales  earned 
on  all  contracts  listed  to  date.  When  reduced  by  the  total 
cost  in  Column  5,  this  total  shows  the  gross  profit  earned — 
which  amount  should  agree  with  the  gross  profit  shown  in  the 
Statement  of  Profit  and  Loss  to  be  illustrated  in  a  later 
•chapter.  The  total  gross  profit  is  reduced  by  the  un-assigned 
expense  as  shown  by  the  General  Expense  account,  which 
reduction  leaves  the  net  profit  or  loss  for  the  year  on  all 
contract  and  jobbing  work. 

The  net  profit  on  any  contract  can  be  obtained  by  adding 
to  the  cost  in  Column  5  its  proportion  of  general  expense, 
and  deducting  this  latter  amount  from  the  sales  figure  in 
Columns  7  or  8.  As  the  percentage  of  general  expense  is 
determined  on  the  basis  of  the  cost  of  all  contract  and  jobbing 
work,  the  total  general  expense  divided  by  the  total  direct 


52      PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

cost  will  give  the  rate  of  per  cent  to  use  as  a  multiplier  of 
the  cost  on  any  contract  in  Column  5.  The  resulting  figure 
will  be  the  amount  to  add  to  the  direct  cost  in  order  to  deter- 
mine the  whole  cost.  When  this  cost  is  deducted  from  the 
sales  figures  in  Column  7  or  8  the  remainder  is  the  net  profit. 

Cost  to  Complete  Unfinished  Contracts. — When  it  is  desired 
to  forecast  the  cost  of  completing  a  contract,  to  the  total 
of  Column  10,  add  10  per  cent  for  gross  profit.  The  resulting 
figure  will  be  the  total  amount  subject  to  requisition  for 
payment  for  the  unfinished  cost  when  completed.  This 
is  of  course  only  an  arbitrary  profit  and  must  be  increased 
or  decreased  to  meet  the  anticipated  expenditures.  Such  a 
forecast  is  for  the  purpose  of  giving  the  contractor  a  state- 
ment of  his  monthly  earnings  from  sales.  As  all  other 
than  lump  sum  contracts  are  treated  as  sales  by  the  fact 
that  they  are  billed  for  the  "cost  in"  plus  profit  (or  on  the 
basis  of  a  unit  price  for  work  performed,  which  includes 
both  cost  and  profit)  it  is  obvious  that  to  ascertain  the  total 
earnings  for  the  month,  it  is  necessary  to  treat  the  requisition 
for  lump  sum  work  for  the  month  as  a  sale.  Accordingly  the 
cost  for  the  month  plus  10  per  cent  is  taken  as  its  amount. 

The  estimated  cost  in  Column  11,  in  this  instance,  is 
increased  by  an  expected  gross  profit  of  12^  per  cent, 
to  approximate  the  sales  to  complete  contracts  other  than 
those  for  lump  sum  work.  These  approximate  sales,  reduced 
by  the  estimated  cost  to  finish  for  both  Columns  10  and  11, 
plus  5  per  cent  on  cost,  will  show  the  amount  of  net  profit 
estimated  to  accrue  to  the  contractor  at  the  completion  of 
all  the  contracts  scheduled. 

The  schedule  just  described  is  an  important  and  useful 
record.  At  the  close  of  the  fiscal  period  it  shows  (1)  the 
condition  of  the  business  as  a  whole  (2)  the  obligations  to  be 
met  to  fulfill  the  requirements  of  the  contractural  agreements 
(3)  the  estimated  earnings  to  liquidate  those  obligations, 
and  (4)  the  estimated  net  profit.  Such  a  schedule  is  thus 
a  statement  of  condition,  presenting  a  detailed  analysis 
of  un-completed  work.  The  contractor  knows  where  he 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS  53 

stands  in  the  work  agreed  on,  while  the  forecasted  net  profit 
represents  a  contractual  defened  asset  to  the  extent  that 
the  expected  income  exceeds  the  whole  estimated  cost  to 
complete. 

Schedules  are  also  made  up  at  the  end  of  each  fiscal  period 
for  all  contracts  closed,  (see  Form  17,  page  144)  showing  the 
net  profit  or  loss  on  the  cost  and  income  accrued  since  the 
last  closing  on  each,  and  in  total  for  all  contracts.  These 
schedules  support  part  of  the  semiannual  or  annual  report, 
or  can  be  given  to  the  contractor  each  month  if  he  so  desires. 

State  Cost  and  Income  Abstract. — Every  State  in  which  a 
contractor  operates  requires  the  filing  of  a  Tax  Report  of 
the  net  profit  earned  on  work  performed  within  its  boun- 
daries. Therefore  an  abstract  is  required  not  only  for  the 
purpose  of  furnishing  this  information  at  the  end  of  the  fiscal 
year  but  also  for  statistical  purposes  showing  the  volume  of 
business  done  in  the  various  States  and  the  cost  and  profit 
in  each.  This  record  has  no  connection  with  the  accounting 
system  and  is  an  independent  abstract  compiled  for  reference 
and  statistical  purposes. 

Many  large  building  contractors  and  engineering  concerns 
carry  on  simultaneously  big  construction  projects  in  different 
parts  of  the  country  and  keep  the  financial  records  at  the 
main  office.  Under  these  circumstances  each  contract  and 
job  number  should  be  prefixed  in  the  Cumulative  Contract 
Ledger  with  the  letter  or  letters  of  the  State  in  which  the 
work  is  being  carried  on,  the  letters  thus  serving  as  a  symbol, 
In  drawing  up  the  statement  a  wide  sheet  of  paper  should  be 
ruled  with  as  many  columns  as  there  are  States  to  be  entered 
thereon  plus  four  additional  columns — as  illustrated  in 
Form  5.  The  following  information  is  then  taken  from  the 
Cumulative  Contract  Ledger  and  the  Jobbing  Card  Ledger. 

Col.  1.  State  Symbol. 

Col.  2.  Amount  of  total  cost  at  end  of  period. 
Col.  3.  Amount  of  toal  cost  at  beginning  of  period. 
Col.  4.  Amount  of  total  cost  for  period — control. 
Col.  5.  Distribution  under  the  State  Symbol. 


54      PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


•3-  -S-  -    -  -I*  -Sj-  41 


.«-  -ET 


a  .s.  . 


THE  FINANCIAL  ACCOUNTS  AND  RECORDS  55 

When  the  distribution  is  made  to  the  proper  State  desig- 
nated by  its  symbol,  the  total  of  the  distribution  columns 
should  equal  the  total  in  Column  4.  The  same  operation  is 
performed  with  the  Jobbing  Ledger  accounts.  A  similar 
sheet  should  be  drawn  up  to  show  the  income  from  each 
State.  From  the  cost  in  Column  2  is  deducted  the  cost 
in  Column  3  and  the  difference  is  entered  in  Column  4, 
to  show  the  cost  for  the  period ;  the  same  operation  performed 
on  the  income  sheet  shows  the  sales.  When  the  three  columns 
are  footed  the  totals  of  Columns  3  and  4  should  equal 
Column  2  while  the  total  of  Column  4  of  each  abstract  should 
equal  the  net  cost  and  income  for  the  period  entered  in  the 
control  accounts,  Accrued  Contract  Cost  and  Earned 
Contract  Sales  on  the  General  Ledger.  After  the  distribu- 
tion of  cost  and  income  to  the  State  columns  of  each  abstract 
the  difference  between  the  two  represents  either  a  gross 
profit  or  a  loss.  To  show  the  net  profit  or  loss  the  unassigned 
overhead  expense  should  be  prorated  over  each  State's 
cost  on  the  basis  of  the  percentage  of  each  cost  to  the  total 
cost  for  the  fiscal  year. 

The  wrriter  thinks  an  annual  statement  is  all  that  is  neces- 
sary, and  while  it  is  possible  to  accumulate  the  cost  and 
income  in  a  ledger  at  monthly  intervals  the  work  would  not 
be  practicable  as  it  would  be  very  inconvenient  to  distribute 
the  overhead  expense  on  other  than  a  semi-annual  or 
annual  basis.  The  statement  is  for  the  purpose  of  arriving 
at  the  amount  of  tax  due  each  state  at  the  end  of  a  fiscal 
period,  but  it  also  records  the  amount  of  business  done  in 
each  state  which  of  course  is  a  feature  of  interest  to  the 
contractor. 


Chart  of  Accounts. — The  relation  of  the  Figure  Analysis 
Book  to  the  other  books  of  account  can  be  made  clear  by 
describing  the  routine  of  the  entries  on  the  books  and  showing 
in  chart  form  their  flow  from  the  receipt  of  the  contract  and 
jobbing  orders  to  the  preparation  of  the  financial  statements 
that  comprise  the  Annual  Report.  The  routine  entries 
required  for  the  preparation  of  the  control  figures  entered  on 
the  General  Ledger  and  the  total  figures  entered  on  the 
subsidiary  or  auxiliary  records  consist  of  the  following  steps : 

1.  Receipt  of  Order  (Contract  and  Job). 

2.  Purchase  Orders  issued. 

3.  Store  Room  Orders  issued. 

4.  Invoices  from  vendors  and  others. 

5.  Payrolls  and  expenses  paid  weekly. 

6.  Charges  for  Material. 

7.  Charges  for  Labor. 

8.  Charges  for  Direct  Expense. 

9.  Charges  for  Indirect  Expense. 

10.  Charges  and  Credits  for  Transfer  Tickets  (Material). 

11.  Work  Reports. 

12.  Bill  to  customer. 

13.  Requisitions  to  customer. 

14.  Assembling  the  entries  from  Columns  3  to  13  on  the    Figure 
Analysis  Book. 

15.  General  Journal  entries  of  the  figures  of  Column  14  for  control 
debits  and  credits. 

16.  Cash  Record — Entry  of  receipts  and  disbursements. 

17.  Accounts  Payable  auxiliary — posting  details. 

18.  Accounts  Receivable  auxiliary — posting  details. 

19.  Cumulative  Contract  Ledger  auxiliary — posting  details. 

20.  Jobbing  Ledger  auxiliary — posting  details. 

21.  General  Expense  Analysis  auxiliary — posting  details. 

22.  Store  Room  Ledger  auxiliary — posting  details. 

56 


THE  FIGURE  ANALYSIS  BOOK 


57 


[CONTRACT  AND  JOBBING  ORDERS  | 

I 

COSTS 

I 

f 

1 

Payroll 

n 

Store  Room  Orders) 

1   Purchase  Orders 

Labor       Expense     Material     Supplie 


Bills       Requisitions       Bills 
Contract  Work    ObrffiBCtWork    Jobbing  Work 


GENERAL  LEDGER    1 

1                       1 

1                             I 

ASSET  ACCOUNTS 

LIABILITY  ACCOUNTS 

NET  WORTH 

DEBITS 

CREDITS 

Cash 

Accounts  Payable 

Capital  Stock 

Accrued  Contract  Cost 

Earned  Contract  Sate 

Accounts  Receivable 

Notes  Payable 

Surplus 

Accrued  Jobbina  Cost 

Jobbina  Soles 

Notes  Receivable 

Accruals 

Net  'Prof  it 

DDeratina  Expense 

Other  Income 

Irwntoryfe*' 

Jnearned  Contract  Sates 

Other  Expenses 

Investments^ 

5ub-  Con  tracts 

Furniture  a  Futures 

Plant 

Deferred  Charges 

Unfcilled  Costs 

Balance  Sheet 


Statement  of 
Profit  and  Loss 


ANNUAL    REPORT 


FORM  6. — General  Contractors'  Chart  of  Accounts. 


58   PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

The  methods  of  handling  store  room  orders,  vendors, 
invoices,  payrolls,  charges  for  materials,  labor,  and  expense, 
and  of  drawing  up  the  bills  and  requisitions  on  customers 
for  work  performed,  will  be  described  in  following  chapters. 
Here  all  that  need  be  explained  is  that  the  entries  listed  above 
cover  the  detail  bookkeeping  preparatory  to  the  classification 
and  summarization  of  these  details  in  the  general  ledger 
accounts  the  main  group  of  which  comprise: 

Asset  Accounts  Liability  Accounts 

1.  Cash  9.  Accounts  Payable 

2.  Accounts  Receivable  10.  Notes  Payable 

3.  Inventories  11.  Accruals 

4.  Investments  12.  Unearned  Sales 

5.  Deferred  Charges  Net  Worth  Accounts 

6.  Unbilled  Costs  13.  Capital  Stock 

7.  Furniture  and  Fixtures  14.  Surplus 

8.  Plant  15.  Net  Profit 

In  Chapter  8  is  given  a  complete  schedule  of  the  general 
ledger  accounts,  with  debits  and  credits,  and  a  description  of 
the  nature  of  the  balance  in  each  case.  In  this  chapter  the 
discussion  is  limited  to  the  place  and  purpose  of  the 
figure  Analysis  Book  in  the  accounting  scheme.  The 
study  of  the  Chart  of  Accounts,  Form  6,  on  the  preceding 
page  in  conjunction  with  the  preceding  explanation  and  the 
discussion  to  follow,  should  make  clear  the  detailed  account- 
ing procedure. 

Sections  of  Figure  Analysis  Book. — The  Figure  Analysis 
Book  contains  a  detailed  record  of  every  item  which  goes 
into  the  cost  of,  and  makes  up  the  income  from  contract  or 
jobbing  work.  The  method  of  entering  the  items  makes 
the  book  an  index  to  all  loose  or  original  records  in  the 
accounting  files.  The  book  is  loose-leaf  in  form  and,  as 
before  stated,  its  main  purpose  is  to  assemble  the  detail 
figures  taken  from  original  papers  and  records  into  control 
account  summaries.  To  this  end  the  leaves  are  divided  into 
a  number  of  sections  devoted  to: 


THE  FIGURE  ANALYSIS  BOOK  59 

1.  Contract  materials 

2.  Labor  and  expense  on  contracts 

3.  Jobbing  work  materials 

4.  Labor  and  expense  on  jobbing  work 

5.  General  Expense  (overhead)  chargeable  to  contracts  and  jobbing 

6.  Store   room  sheet  showing   materials   charged   to   contract  and 
jobbing  and  credited  to  Store  Room  account 

7.  Charges  to  Accounts  Receivable  for  Unearned  and  Earned  Contract 
sales  and  all  jobbing  work  billed. 

Each  sheet  of  the  Figure  Analysis  Book  contains  12 
columns  and  each  column  is  provided  with  a  margin  for 
recording  the  purchase  order  number  or  other  number 
covering  the  entry.  The  columns  of  the  individual  sheets 
allotted  to  contracts  and  the  sheet  or  sheets  allotted  to  job 
work  are  stamped  in  their  headings  with  the  names  of  the 
months  to  show  the  cumulative  totals  to  date  thus  showing 
the  detail  of  the  total  figures  posted  to  the  Cumulative 
Contract  Ledger.  The  analyses  in  the  various  sections 
furnish  the  control  totals  to  be  credited  to  Accounts  Payable, 
Payroll  and  Store  Room  and  charged  to  Contract  Cost, 
Jobbing  Cost,  General  Expense,  or  Store  Room — as  the 
nature  of  the  entry  may  require.  The  charges  to  Contract 
Cost  and  Jobbing  Cost  in  their  turn  furnish  the  control 
figures  for  all  detail  costs  for  contract  and  jobbing  work 
performed. 

Distribution  of  Vendors1  Invoices. — The  distribution  of 
the  entries  on  the  Figure  Analysis  Book  begins  with  vendors' 
invoices  for  materials  or  supplies,  all  of  which  must  be 
charged  to  one  of  its  sections.  Invoices  are  first  sorted  into 
the  classifications  and  numbered  order  of: 

1.  Contracts  3.  Store  Room 

2.  Jobbing  work  4.  General  Expense 

after  which  they  are  arranged  in  the  order  of  the  purchase 
order  number  entered  thereon.  The  sheets  of  the  contract 
section  are  filed  in  the  order  of  the  contract  number — one 
sheet  to  each  contract ;  separate  sheets  are  devoted  to  each 
general  expense  account  arranged  in  the  order  of  the  account 


60      PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


classification  numbers ;  and  one  sheet  or.  more  is  allotted  to 
the  Store  Room  account.  The  amount  of  the  invoice, 
together  with  its  purchase  order  number  is  entered  on  the 
sheet  bearing  the  same  contract  number  or  on  the  proper 
general  expense  account  sheet  or  on  the  store  room  sheet — as 
the  nature  of  the  charge  may  require.  At  the  top  of  each 
sheet  are  entered  the  numbers  of  the  Contract  or  titles  of  the 
general  ledger  control  accounts  to  be  charged  and  credited 
at  the  end  of  the  month.  In  the  illustrations  of  the  method 
of  making  the  entries  to  follow,  the  names  of  the  accounts  to 
be  debited  and  credited  are,  for  the  sake  of  clarity,  given 
in  the  headings.  All  deductions  are  entered  in  red  ink  and 
appear  in  the  illustrative  figures  in  bold  faced  type. 

MATERIAL  COST  "CONTRACTS" 
To  Accounts  Payable — Contract  No.  201 


Jan.,  1920 

Feb.,  1920 

Mar.,  1920 

No. 

Amount 

No. 

Amount 

No. 

Amount 

No. 

Amount 

No. 

Amount 

1 

$3,250 

5 

$  210 

13 

$340 

2 

200 

6 

140 

14 

90 

3 

400 

7 

90 

15 

70 

4 

3,000 

8 

70 

16 

150 

1 

75 

9 

400 

17 

140 

6,775 

10 

190 

18 

175 

11 

200 

19 

33 

12 

150 

998 

4 

M 

1,430 

GENERAL  EXPENSE  "STATIONERY"  C  No.  10  STORE  ROOM 

To  Accounts  Payable  To  Accounts  Payable 


Jan.,  1920 

Feb.,  1920 

Mar.,  1920 

Jan.,  1920 

Feb.,  1920 

No. 

Amount 

No. 

Amount 

No. 

Amount 

No. 

Amount 

No. 

Amount 

11 

$150 

1 

$1,000 

17 

200 

2 

470 

21 

325 

3 

900 

27 

70 

4 

70 

XI 

20 

Dr. 

2,370 

Dr. 

725 

Cr. 

70 

THE  FIGURE  ANALYSIS  BOOK  61 

After  the  invoices  have  been  distributed  on  the  Figure 
Analysis  Book  each  day  they  are  received,  they  are  posted 
to  the  proper  account  on  the  Accounts  Payable  Ledger. 
When  making  the  posting  the  amount  on  the  Figure  Analysis 
Book  should  be  ticked  as  a  check  on  the  accuracy  of  the  work 
and  as  an  indication  that  the  posting  has  been  made.  Nega- 
tive entries  for  returned  goods  or  credit  memorandums  for 
allowances  are  deducted  by  means  of  a  red  ink  entry  and  by  a 
debit  to  the  vendor's  account. 

Charging  Material  to  Contracts. — As  the  purpose  of  the 
Cumulative  Contract  Ledger  is  to  show  each  item  of  cost 
and  income  for  the  month  for  each  contract  in  one  amount 
only,  and  as  material  is  charged  and  credited  from  other 
sources  besides  vendors'  invoices,  it  is  obvious  that  accounts 
payable  items  must  be  consolidated  with  such  charges  and 
that  a  distinction  must  be  made  in  the  entries  to  obtain  the 
controlling  figures.  The  material  charges  and  credits  other 
than  those  obtained  from  invoices  are  derived  from  store 
room  accounts  and  from  transfers  of  material  from  one 
contract  to  another.  To  keep  track  of  these  charges  and 
credits  ''Transfer  Tickets"  are  made  out  charging  one  con- 
tract and  crediting  another,  and  tickets  are  likewise  issued 
as  a  charge  and  credit  to  both  stores  and  contracts.  These 
tickets  are  priced  and  sorted  in  the  order  of  the  contract 
numbers  and  the  amounts  to  be  distributed  are  covered  by 
a  journal  entry  charging  the  proper  contract  and  crediting 
Store  Room  or  other  contract  (See  Form  8). 

The  details  of  this  journal  entry  are  then  entered  in  the 
Figure  Analysis  Book  with  a  "  J"  for  journal  and  its  number 
prefixed  to  the  amount.  It  is  apparent  that  the  journal 
entry  has  no  bearing  on  personal  accounts  its  only  effect 
being  a  charge  to  cost  and  a  credit  to  Store  Room  or  other 
contract  thus  completing  the  single  total  for  material  cost 
to  be  charged  each  contract  monthly  on  the  Cumulative  Con- 
tract ledger.  On  a  very  big  and  active  contract  the  entries 
from  invoices  and  store  room  orders  may  run  to  one  or  more 
columns  to  each  contract  each  month. 


62  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


At  the  end  of  the  month  the  entries  on  the  Figure  Analysis 
Book,  are  footed  by  the  adding  machine  for  both  black  and 
red  figure  amounts.  The  difference  between  the  black  and 
red  figure  totals  is  the  total  material  cost  debit  or  credit  to 
each  contract  for  the  current  month.  Each  of  these  totals 
is  then  made  into  a  list  as  follows: 


Contract 
No. 

Net  Totals 
Figure  Analysis  Book 

Posting  Amount 
Cumulative  Contract 
Ledger 

Debit 

Credit 

Installed 

Inventory 

101 

2,740.00 

1,700 

1,040 

2 

12,946.72 

10,500 

2,446.72 

3 

10,407.40 

12,000 

1,592.60 

4 

13,220.47 

12,960 

260.47 

5 

15,286.92 

16,000 

713.08 

6 

370.40 

1,400 

1,770.40 

7 

14,711.19 

13,960 

751.19 

8 

1,275.40 

2,000 

724.60 

9 

3,740.86 

5,000 

1,259.14 

110 

27.00 

1,260 

1,287.00 

1 

1,602.60 

2,000 

3,602.60 

2 

12,462.91 

11,400 

1,062.91 

3 

10,407.46 

9,000 

1,407.46 

4 

12,962.21 

8,000 

4,962.21 

5 

9,838.46 

6,000 

3,838.46 

Total  Debit.  .  .  . 

120,000 

Total  Installed  

113,180 

Total  Credit..  .  . 

2,000 

Total  Net  Inventory.  . 

4,820 

Net  Cost  

118,000 

118,000 

Reports  from  foremen  showing  the  materials  installed 
on  all  contracts  are  turned  in  each  week  and  priced  at  cost. 
Bills  are  then  made  from  the  reports  of  all  contracts  other 
than  those  on  a  lump  sum  basis.  All  reports  including  those 
of  lump  sum  are  then  arranged  in  the  order  of  contract 
numbers  and  distributed  on  columnar  ruled  analysis  paper 
to  each  contract  as  designated  by  the  column  assigned  to  each 
contract.  At  the  end  of  the  month  these  columns  are  footed, 


THE  FIGURE  ANALYSIS  BOOK  63 

and  each  total  shown,  is  the  value  of  the  materials  installed, 
which  is  the  amount  charged  to  the  cumulative  contract 
ledger.  These  amounts  as  scheduled,  when  applied  along- 
side the  contract  charges  and  credits  for  materials  taken  from 
the  figure  analysis  book  will  show  a  difference  which  increases 
or  decreases  the  inventory  of  materials  charged  to  the  con- 
tract as  shown  the  previous  month  on  the  cumulative 
contract  ledger,  previously  mentioned. 

Accounts  Payable  Control  Figures. — As  before  stated  the 
charges  for  materials  to  contracts  comprise  both  personal  and 
impersonal  items  and  as  the  latter  are  in  control  from  the 
journal  entry,  to  get  the  control  figures  for  Accounts  Payable 
requires  the  following  calculation: 

Total  net  charges  to  contracts  as  per  Figure  Analysis 

Book  are $120,000 

Less  total  net  credits  to  contracts  as  per  Figure 

Analysis  Book  are 2,000 


Total  net  cost  to  contracts  is $118,000 

Add  total  net  credits  to  contracts 9,000 


Gives  total  net  debits  to  contracts $127,000 

The  total  credits  brought  down $9,000 

Less  total  Journal  entries  for  the  month 6,700      5,300 


Gives  contract  charge  and  credit  "Vendors" $120,300    $3,700 

The  following  journal  entry  will  set  up  the  control  charge 
and  credit  to  cost  and  accounts  payable  for  vendors  invoices, 
thus  eliminating  journal  entries  included  in  the  net  totals 
for  impersonal  items  for  the  month  and  made  separately 
during  the  month. 

Debit.  Credit. 

Accrued  Contract  Cost $120,300         $    3,700 

Accounts  Payable 3,700  120,300 

The  above  journal  entry  is  entered  on  the  General  Journal 
completing  the  control  of  $120,000  debit  and  $2,000  credit, 
a  net  debit  of  $118,000— viz. 


64      PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


Debit. 

Vendors'  Invoices $120,300 

Journal  Entries 6,700 


$127,000 


Net  Balance. 


Credit. 
3,700  F.A.B. 
5,300  F.A.B. 


$    9,000 
118,000 


The  details  making  the  net  of  $120,000  debit  and  $2,000 
credit  are  posted  to  the  material  cost  of  the  Cumulative 
Contract  Ledger  direct  from  the  journal  entry  showing  the 
amount  installed  and  changes  of  inventory. 

Labor  and  Expense  Chargeable  to  Contracts. — This 
section  of  the  Figure  Analysis  Book  comprises  two  sheets, 
on  which  weekly  entries  are  made  from  the  payrolls  and 
foremen's  report  of  expenses. 

Specimen  entries  on  these  sheets  are  shown  below: 

LABOR  TO  PAYROLL  AND  EXPENSE 


Contract  No. 

Monthly 
Total 

Weekly  Auxiliary 

201 

$    566 

$    125 

$    145 

$    150 

$    146 

2 

2,775 

700 

670 

710 

695 

3 

422 

90 

100 

112 

120 

4 

506 

126 

124 

130 

126 

5 

442 

80 

110 

120 

132 

Total  

$4,711 

$1,121 

$1,149 

$1,222 

$1,219 

EXPENSE  TO  PAYROLL  AND  EXPENSE 


Contract 
No. 

Monthly 
Total 

Weekly  Auxiliary 

201 

$126 

$  42 

$  31 

$  19 

$27 

$  45 

2 

415 

120 

92 

107 

46 

50 

3 

40 

4 

12 

16 

10 

2 

4 

33 

10 

12 

8 

2 

1 

5 

49 

12 

9 

7 

11 

10 

Total  

$663 

$188 

$156 

$119 

$96 

$104 

THE  FIGURE  ANALYSIS  BOOK  65 

The  first  amount  column  lists  the  contract  numbers  in 
consecutive  order.  On  out-of-town  work  foremen  are  some- 
times provided  with  a  fund  from  which  they  pay  their  men, 
and  when  they  turn  in  their  payroll  and  expense  report, 
they  are  reimbursed  by  check.  This  check  is  entered  in  the 
cash  book  column  headed  Payroll  Expense,  the  total  of  which 
is  charged  at  the  end  of  each  month  to  that  account  on  the 
General  Ledger  as  an  undistributed  expenditure. 

At  the  end  of  each  month  the  horizontal  auxiliary  columns 
in  the  labor  and  expense  section  of  the  Figure  Analysis  Book 
are  cross  added,  and  their  totals  are  entered  in  the  first 
column  to  collect  the  labor  chargeable  to  the  contract  whose 
number  is  prefixed.  The  expenses  which  accompany  the 
payrolls  are  entered  on  the  right  hand  page.  Other  direct 
expenses  chargeable  to  contracts  and  jobs  are  such  items  as 
traveling,  insurance,  bonding,  etc.,  which  have  been  tem- 
porarily charged  to  Payroll  and  Expense  in  the  General 
Ledger  by  journal  entry.  The  distribution  of  these  items  in 
the  expense  section  of  the  Figure  Analysis  Book  furnishes 
the  total  direct  expense  to  charge  to  the  Cumulative 
Contract  Ledger.  When  the  entries  in  the  auxiliary  columns 
have  been  totalled  and  entered  in  the  first  column  the  total 
labor  and  expense  should  clear  the  monthly  charges  to 
Payroll  and  Expense  Account  on  the  General  Ledger  as 
shown  below: 

ACCRUED  CONTRACT  COST 

Labor $78,900.00 

Expense 12,250.00 

To  Payroll  and  Expense  Account $91,150.00 

Transfer  from  latter  to  former  account. 

This  closes  the  Payroll  and  Expense  account  of  unassigned 
charges  for  the  month  made  to  the  General  Ledger. 

Jobbing  Section. — As  jobbing  work  is  only  a  small  feature 
auxiliary  to  general  contracting,  one  sheet  in  the  Figure 
Analysis  Book  suffices  to  collect  the  total  cost  of  all  jobs 
with  auxiliary  sheets  for  the  record  of  the  cost  of  material, 
labor  and  expense.  Illustrative  entries  are  shown  below: 


66  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


ACCOUNTS  RECEIVABLE 
To  Jobbing  Sales 


January,  1920 

February,  1920 

Date  & 
Bill  No. 

Amount 

Date  & 
Bill  No. 

Amount 

No. 

Amount 

No. 

Amount 

1 

X 

5004 

$170 

5005 

$195 

2 

K 

5005 

195 

5005 

175 

4 

2 

5006 

310 

5007 

702 

Debit: 

$675 

Debit: 

$877 

Credit: 

195 

Each  job  is  given  a  number  and  the  detail  cost  and  income 
card  shown  in  Form  7.     These  cards  are  kept  in  separate 


L.  K.  COMSTOCK  &  CO.  INC. 


COST  AND  INCOME  LEDGEIfJOBBING" 

NAME 

JOB  HO. 

LOCATION 

KEMAEKS 

DE 

HT 

CBI 

PIT 

DATE 

EXPL.NSE 

LABOR 

MATERIAL 

TOTAL 

DATE            |    ACCl'i  REC 

h 

I 

w 

I 

FORM  7. — Jobbing  Card  Ledger. 

files  in  which  they  are  arranged  in  the  order  of  the  job 
numbers.  The  cards  contain  four  columns  for  debits  headed 
Material,  Labor,  Expense  and  Total  and  one  amount  column 
for  Credits.  The  items  of  cost,  as  with  contracts,  are  derived 
from  payrolls  and  expense,  vendors'  invoices,  store  room 
orders  and  material  transfers,  which  entries  are  the  basis  of 


THE  FIGURE  ANALYSIS  BOOK  67 

the  bills  rendered  to  customers  and  credited  on  the  cards. 
The  items  are  posted  to  the  jobbing  ledger  cards  direct  from 
the  Figure  Analysis  Book,  the  totals  of  which  are  framed  into 
a  journal  entry  each  month  charging  the  control  accounts 
Jobbing  Cost  and  crediting  Jobbing  Sales.  The  balance 
of  these  controls  will  be  the  same  as  those  of  the  cost 
and  income  cards,  less  the  cost  unbilled  which  is  the  inven- 
tory of  accrued  cost.  When  bills  are  rendered  to  customers 
they  are  charged  to  the  Accounts  Receivable  Ledger  direct 
from  the  duplicate  bill  on  file  and  then  credited  on  the 
Jobbing  Ledger  card. 

The  same  procedure  is  followed  in  entering  the  labor  and 
expense  of  jobs  in  the  Figure  Analysis  Book  as  in  recording 
the  similar  items  charged  to  contracts.  The  total  weekly 
labor  is  posted  to  a  column  headed  Jobbing  Cost  Labor,  and 
the  expense  total  to  Jobbing  Cost  Expense.  At  the  end  of 
the  month  the  two  totals  are  framed  into  a  journal  entry 
clearing  Payroll  and  Expense  account  for  the  amount  of 
checks  charged  to  this  account  for  jobbing,  making  a  control 
for  Accrued  Jobbing  Cost  as  follows : 

Accrued  Jobbing  Cost $83,000 

To  Payroll  and  Expense  Account $83,000 

Labor $80,000 

Expense 3,000 

Transfer  of  charges  for  the  month  from  latter 
to  former  account  as  recorded  in  the  Figure 
Analysis  Book. 

Overhead  or  General  Expense. — One  General  Expense 
control  account  for  Overhead  on  the  General  Ledger  is 
charged  and  credited  from  the  total  classified  entries  made 
each  month  on  the  Figure  Analysis  Book  in  which  separate 
sheets  are  allotted  to  each  class  of  expense  wrhich  cannot 
be  assigned  to  contracts  and  jobs  direct.  The  detail  figures 
are  distributed  daily  according  to  the  account  classification 
number  of  the  invoice  and  the  totals  are  footed  monthly. 
They  are  then  expressed  in  a  detail  statement  supporting 
the  Profit  and  Loss  statement  (see  Chap.  X).  Their 


68     PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


MONTH  OF  MARCH,  1920 
Sundries  to  Sundries 


101 

141 

148 

Jobbing 

Store  Room 

No. 

Amount 

No. 

Amount 

No. 

Amount 

No. 

Amount 

No. 

Amount 

1 
3 

$     2:96 
4.72 

14 
17 

$  14.91 
13.76 

25 

$  42.81 

5101 
35 
5102 
36 
5103 
37 
5104 

38 
5105 
39 
5105 
30 

$  76.92 
27.60 
46.92 

96.22 
122.40 
92.00 

1 
2 
3 
4 
8 
6 
7 

8 
9 

10 
1 
2 
3 

4 
5 
6 

7 
8 
9 

20 

1 
2 
3 
4 

5 

6 
7 

8 
9 
33 

4 

5 
6 
7 
8 
9 

$        2.96 
40.96 
4.72 
10.96 
33.40 
12.96 
27.93 

11.42 
42.91 
76.92 
14.76 
15.32 
170.40 
14.91 
76.92 
470.92 

13.76 
110.21 
47.90 

91.02 

72.40 
14.00 
76.50 
150.00 

42.81 
96.00 
480.00 

477.00 
45.75 

17.00 
470.00 

76.92 
27.60 
46.92 
96.22 
122.40 

$     7.68 

$  28.67 

125                             142                              149 

2 
5 
6 

$  40.96 
33.40 
12.96 

15 
18 

$  76.92 
110.21 

26 

$  96.00 

$187.13 

$  87.32 

126 

143 

150 

$278.06 

4 

8 

$  10.96 
11.42 

16 
19 
30 
31 

$470.92 
47.90 
$92  00 
42.00 

24 
31 

$150.00 
42.00 

$  22.38 

$192.00 

$568.82 

127 

144 

151 

7 
9 

$27.93 
42.91 

21 
20 
32 

$  72.40 
91  02 
12.00 

29 
32 

$  45.75 
12.00 

$  70.84 

$  57.75 

$151.42 

130 

146 

152 

11 
12 

$  14.76 
15.32 

22 
34 

$  14.00 
470.00 

28 

$477.00 

$  30.08 

456.00 

140 

147 

153 

10 
13 
S3 

$  7692 
17040 
17.00 

23 

$  76  50 

27 

$480.00 

$2,628.78 

$230.32 

FORM  8. — Analysis  of  Store  Room  Orders  and  Transfer  Tickets. 

classification  may  be  by  numerical  symbols  in  three  divi- 
sions such  as:  101  to  199.  Engineering  Expense;  201  to  299. 
Selling  Expense;  and  301  to  399.  Administrative  Expense. 
The  accumulated  total  of  each  item  of  expense  should  equal 
the  balance  of  the  General  Expense  Account  on  the  General 
Ledger.  The  monthly  journal  entry  covers  these  general 
expense  accounts  and  a  transcript  of  this  could  be  made 


THE  FIGURE  ANALYSIS  BOOK 


69 


each  month  as  a  report  to  submit  to  the  contractor  to  keep 
him  informed  of  fluctuations  in  the  overhead  figures. 

Analysis  of  Store  Room  Orders  and  Transfers. — The 
sheet  in  the  Figure  Analysis  Book  devoted  to  the  analysis 
of  transfers  and  store  room  orders  is  illustrated  in  Form  8. 
The  method  of  compiling  the  figures  is  self-explanatory. 
In  studying  the  figures  it  will  be  noted  that  Entries  30  to  32 
inclusive  are  not  included  in  the  store  room  total  because 
they  constitute  transfers  from  one  contract  to  another  as 
shown  on  the  sheet.  After  completing  the  entries  to  Form 
8  a  journal  entry  is  drawn  up  in  the  form  shown  below 


L.  K.  COMSTOCK  &  CO.,  INC. 


March  31,  1920. 
J.  E.  No.  27. 


SUNDRIES 
To  Store  Room 

Auxiliary 

Dr. 

Cr. 

Accrued  Contract  Coal.  .  . 

$2,350.72 

Contract—  101 

$    7.68 

125 

87.32 

126 

22.38 

127 

70.84 

130 

30.08 

140 

230.32 

141 

28.67 

142 

187.13 

143 

568.82 

144 

151.42 

146 

456.00 

147 

76.50 

148 

42.81 

149 

96.00 

150 

192.00 

151 

57.75 

152 

477.00 

153 

480.00 

Accrued  Jobbing  Cost 

$278.06 

To  Store  Room. 

$2,628.78 

Monthly  Analysis — Transfers  and  Store  Room  Orders 
No.  1  to  39  inclusive 


70     PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

charging  Accrued  Jobbing  Cost  and  Accrued  Contract  Cost 
and  crediting  Store  Room  with  the  total  withdrawals  on  the 
General  Ledger,  the  detail  in  the  auxiliary  column  being 
posted  to  each  contract  on  the  Figure  Analysis  Book. 

Unearned  Contract  Sales. — This  section  of  the  Figure 
Analysis  Book  constitutes  the  detailed  record  of  the  sales 
charged  individually  against  owners  on  the  Accounts  Receiv- 
able Ledger  and  in  total  to  the  Control  Accounts  Receivable 
and  Unearned  Contract  Sales  Accounts.  Customers' 
accounts,  it  will  be  remembered,  are  charged  not  only  with 
all  bills  rendered  but  with  the  price  of  lump  sum  contracts 
and  orders  for  extra  work.  The  portion  of  a  lump  sum 
contract  which  is  considered  as  earned  is  the  cost  of  the  work 
installed  plus  10  per  cent.  To  avoid  confusion  Unearned 
Contract  Sales  is  credited  provisionally  for  both  earned  and 
unearned  sales  and  is  charged  for  the  amount  earned  as  shown 
on  the  Cumulative  Contract  Ledger.  This  charge  includes 
all  contract  billing,  plus  the  requisitions  for  lump  sum  work. 
After  this  charge  and  credit  have  been  made  the  balance  of 
the  account  represents  the  unearned  portion  of  lump  sum 
contracts. 

The  first  two  columns  of  the  sheets  of  this  section  collect 
the  total  detail  of  the  charges  and  credits  made  to  accounts 
receivable  which,  are  entered  no  horizontal  lines  of  the 
auxiliary  distribution,  and  taken  from  bills  issued  to  customers 
and  contracts  and  extra  orders  accepted.  Since  there  may 
be  quite  a  number  of  bills  both  debit  and  credit,  each  horizontal 
section  is  given  a  space  of  two  lines,  and  they  are  arranged  in 
the  order  of  contract  numbers.  The  net  totals  of  the  amounts 
so  entered  during  the  month,  are  then  cross  added  and  entered 
at  the  end  of  each  month  in  the  first  two  columns  as  a  charge 
or  credit  to  the  contract  on  the  Cumulative  Contract  Ledger, 
either  for  earned  or  unearned  Sales  as  the  case  may  be. 

Entries  are  made  in  the  auxiliary  columns  as  frequently 
as  bills  are  rendered  to  customers,  or  when  a  contract  on  a 
lump  sum  basis  and  extra  order  work  is  accepted.  The 
detail  debits  are  entered  in  black  ink,  and  credits  in  red 
(bold  faced  type). 


THE  FIGURE  ANALYSIS  BOOK 


71 


The  totals,  both  debit  and  credit,  are  illustrated  by  the 
following: 

ACCOUNTS  RECEIVABLE 
To  Unearned  Contract  Sales 


Unearned  Contract 

Accounts  Receivable  —  Daily  Auxiliary  — 
Debits  and  Credits 

Contract 

Sales 

No. 

Debit 

Credit 

201 

$        465 

$          50 

$      70       $    150 

$      65 

$200 

$70 

2 

11,675 

2,300 

4,200         2,175 

3,000 

3 

$  10 

140 

200 

160 

90 

600 

4 

175 

176 

5 

100,360 

100,000 

200 

160 

6 

200,090 

200,000 

90 

Total  

$185     ;    $312,590       $302,315 

$4,760 

$2,645 

$3.155 

$400         $70 

The  method  of  compiling  the  control  figures  for  Accounts 
Receivable  is  similar  to  the  method  used  in  obtaining  the 
control  figures  for  Accounts  Payable,  as  follows: 

How  to  get  the  Control  for  Accounts  Receivable  and  Sales 
The  difference  between  the  monthly  totals  is— Debit:  $312,590 

Credit:  $185 $312,405 

The  total  credits  are..  845 


Total  is  the  Control  Debit  to  Accounts  Receivable $313,250 

Less:  The  Total  Control  Credit  Receivable. .  845 


Difference  is  the  Net  Credit  to  Contracts $312,405 

hence  this  journal  entry: 

Debit:  Accounts  Receivable  Control $313,250 

Unearned  Contract  Sales 845 

Credit :  Accounts  Receivable  Control 845 

Unearned  Contract  Sales $313,250 

equal  to  the  net  in  both  instances  of  $312,405. 

Consolidated  Journal  Entry  of  Control  Figures. — After 
the  control  figures  to  be  posted  to  the  General  Ledger  have 
been  figured  in  the  way  just  described  a  consolidated  journal 
entry  is  drawn  up  showing  the  debits  and  credits  to  be  made 
to  the  various  ledger  control  accounts  as  illustrated  below: 


72   PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


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THE  FIGURE  ANALYSIS  BOOK 


73 


The  above  figures  are  entered  in  the  proper  columns  of 
the  General  Journal,  the  headings  of  which  were  described 
in  the  preceding  chapter.  The  advantage  of  compiling  such 
an  entry  is  that  it  insures  the  reconcilement  of  the  total 
debits  and  credits  posted  to  the  General  Ledger. 

As  before  stated,  at  the  tune  postings  are  made  to  the 
personal  and  impersonal  accounts  from  the  Figure  Analysis 
Book,  the  entries  in  the  latter  book  are  ticked  as  a  check  on 
the  accuracy  of  the  record.  Thus  the  Figure  Analysis  Book 
assembles  the  detail  for  the  purpose  of  compiling  the  control 
figures  and  at  the  same  time  serves  as  a  checking  medium 
to  insure  accuracy  in  posting. 

Inventory  of  Unbilled  Costs. — After  all  charges  to  contracts 
have  been  made  and  bills  have  been  rendered  to  owners 
there  may  still  remain  certain  items  of  expense,  labor,  and 
material  charged  to  contracts,  which  items  for  various  reasons 
have  not  yet  been  billed.  Such  charges  constitute  the 
inventory  of  unbilled  costs  to  be  set  up  on  the  books  by 
means  of  the  following  memorandum  entry: 

Accrued  Contract  Cost 

To  Accrued  Contract  Cost 

Analysis  of  inventory  of  unbilled  costs 

The  method  of  compiling  the  above  entry  is  shown  below: 

INVENTORY  OF  UNBILLED  COSTS,  AS  ANALYZED 


Expense 

Labor 

Material 

Total 

Number 

$  0.50 
1.25 

$270 
95 

$150 
700 

101 

1.75 

365 

850 

$     1,390 

17.20 
19.50 

220 
175 

350 
247 

102 

36.70 

395 

597 

102,870 

74   PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

When  the  Figure  Analysis  Book  is  kept  up  to  date  and 
totals  are  compiled  at  the  end  of  the  month  it  furnishes  com- 
plete information  as  to  the  detailed  cost  of  every  contract 
or  job  and  thus  is  an  up-to-date  record  of  the  status  of  every 
cost  and  income  and  expense  account. 

Since  every  detail  of  cost  and  income  is  first  entered  in 
the  Figure  Analysis  Book,  a  comprehensive  description  of 
its  construction  is  essential  to  clearly  understand  its  functions. 
The  book  is  composed  of  about  three  hundred  columnar  ruled 
sheets  of  analysis  paper  of  12  columns.  Prefixed  to  the 
amount  margin  is  a  space  to  provide  for  the  entry  of  the 
number  of  the  Contract,  Job,  Invoice,  Bill,  Journal  Entry, 
Store  Room  Order  or  Transfer  Ticket.  The  sheets  are 
carried  in  a-loose  leaf  binder,  and  when  they  are  completely 
filled  with  entries  which  they  were  originally  assigned  to 
receive,  or  a  contract  is  finished  and  all  entries  of  cost  and 
income  are  considered  in,  such  sheets  are  transferred  to  a 
binder  as  dead  records,  thus  leaving  the  Figure  Analysis 
Book  representing  contracts  and  jobs  in  operation  and 
unfinished. 

The  various  natures  of  cost  and  income  are  grouped  in 
successive  sections  of  the  book  in  the  following  order : 

1.  Payroll  Labor  and  Expense  Contracts. 

Posted  from  the  out-of-town  vouchers  and  the  local  payroll 
summary  for  details  of  each  contract. 

2.  Payroll  Labor  and  Expense  Jobbing  Work. 

Posted  from  the  out-of-town  vouchers  and  the  totals.  Labor 
and  expense  to  be  charged  to  jobbing  work  as  shown  on  the 
local  payroll  summary.  Note,  since  the  detail  charge  to  each 
job  is  posted  to  the  job  ledger  account  direct  from  the  summary, 
all  that  is  needed  is  the  totals  to  get  the  amount  to  clear  the 
Payroll  and  Expense  unassigned  at  the  end  of  the  month. 

3.  Overhead  Expenses  in  the  order  of  their  classification  number,  a 

sheet  for  each  number. 

Each  month  should  be  footed  separately,  then  cumulated  to  the 
time  of  closing  the  books.  The  totals  of  each  expense  when 
added  must  be  in  reconciliation  with  the  charges  to  General 
Expense  Control  Account. 


THE  FIGURE  ANALYSIS  BOOK  75 

4.  Jobbing  Costs. 

Enter  order  and  job  number  also  amount  of  invoice  from  vendor. 

5.  Jobbing  Sales. 

Enter  date  and  number  of  bill  rendered  to  customer,  also  amount. 

6.  Analysis  of  Store  Room  orders  and  Transfer  Tickets.     Charging 

and  crediting  Store  Room,  Contract  and  Jobbing,  and  General 
Expense. 

The  result  of  this  analysis  is  framed  into  a  journal  entry  each 
month  from  which  postings  are  made  direct  to  the  accounts 
affected. 

7.  Store  Room. 

Enter  all  materials  and  supplies  charged  by  direct  purchase  as 
shown  by  vendor's  invoice. 

8.  Equipment. 

Same  as  No.  7. 

9.  Furniture  and  Fixtures. 

Same  as  No.  7. 

10.  Contract  Sales. 

Enter  value  of  all  lump  sum  contracts  and  extras  and  all  bills 
other  than  lump  sum  for  contract  work  performed.  Any 
deductions  in  the  way  of  modifications  of  a  lump  sum  price  or 
allowances  made  on  a  billing  contract  enter  in  red  figure 
amounts. 

11.  Contract  Cost  Material. 

Lay  out  a  sheet  for  each  contract  in  the  order  of  contract  numbers 
which  are  consecutive.  Enter  invoices  from  vendors  and 
charges  from  store  room  or  transfers  from  other  jobs  for  all 
materials  delivered  to  be  used  on  the  contract.  Enter  also  all 
credits  made  for  any  materials  heretofore  charged  in  red  figure 
amounts.  Foot  the  black  and  red  figure  entries  separately  and 
enter  their  difference  for  the  net  footing  each  month,  which 
will  give  either  the  charge  or  credit  for  materials  to  be  made 
to  the  contract  each  month  to  be  further  determined  as  in- 
stalled or  in  inventory  as  applying  to  a  specific  contract. 

The  ruling  for  the  sheets  is  here  shown : 
The  month  and  year  is  placed  at  the  head  of  the  columns  by 
a  rubber  stamp,  which  is  done  usually  at  the  beginning  of 
each  month. 


76      PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


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CHAPTER  VI 
HANDLING  PURCHASE  AND  STORE  ROOM  ORDERS 

Sources  of  Charges. — As  explained  in  the  preceding  chapter 
material  and  supplies  charged  to  contracts  and  jobbing  work 
are  taken  from  vendors'  invoices,  store  room  orders  and  trans- 
fer tickets.  Labor  charges  and  direct  expense  are  taken 
from  the  payroll  in  which  the  entries  are  segregated  by 
contract  or  job  number.  The  sources  of  the  expense  charges 
are  stores  requisitions,  creditor's  invoices  for  services  rendered, 
and  bills  and  vouchers  for  bonding,  public  liability  and  work- 
men's compensation  insurance,  foremen's  expenses,  traveling 
and  entertaining,  rentals,  payrolls,  etc.  A  further  charge 
frequently  incurred  on  contract  work  is  that  performed  by 
sub-contractors.  This  charge  is  classed  as  material  and  the 
method  of  its  handling  will  be  discussed  later. 

Issuance  of  Purchase  Orders. — Materials  and  supplies 
are  procured  by  means  of  purchase  orders  made  out  in  sets 
of  three,  and  issued  for  the  procurement  of  (1)  material 
delivered  direct  to  the  job  and  store  room,  (2)  furniture  and 
fixtures,  (3)  plant  items,  and  (4)  office  supplies.  The  original 
is  sent  to  the  vendor,  the  duplicate  forms  the  open  order  file 
for  the  accounting  department,  and  the  triplicate  is  given 
either  to  the  foremen  on  the  job,  the  store  room  clerk,  or  the 
persons  in  charge  of  furniture  and  fixtures,  and  office  supplies 
— as  may  be  required.  If  the  triplicate  shows  full  delivery, 
the  person  who  receives  the  goods  signs  the  order  and  returns 
it  to  the  accounting  department,  where  it  is  considered  as  a 
complete  receipt  and  filed  according  to  the  numerical  sequence 
of  the  order  number  to  await  the  receipt  of  the  invoice. 

The  orders  are  classified  and  issud  hi  a  series  of  consecutive 
numbers  for  each  contract  and  job  for  each  store  room  and  for 
capital  expenditure,  and  general  expense.  The  use  of  these 

77 


78  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

series  needs  brief  explanation.  If  a  contract  number  is  407, 
when  the  second  order  for  delivery  of  materials  on  this 
contract  is  placed  the  order  number  would  be  2^07;  similar 
orders  for  delivery  to  store  room  bear  a  consecutive  number 
preceding  the  letters  SR ;  for  furniture  and  fixtures  the  letters 
FF;  and  for  general  expense  the  letters  GE  are  used,  and  the 
purchase  orders  are  grouped  in  numerical  order  when  filed. 
Each  contract  has  its  own  series  of  numbers  and  a  new  series 
is  started  for  the  store  room,  etc.,  annually  or  as  often  as  is 
required. 

Checking  Invoices. — In  addition  to  the  purchase  order 
series  number,  the  invoices  must  show  the  number  of  the 
account  to  which  they  are  to  be  posted.  All  invoices  should 
be  rendered  in  duplicate  and  vendors  are  asked  to  quote  the 
order  number  and  account  number  entered  on  the  purchase 
order.  When  an  invoice  is  received  in  the  accounting  depart- 
ment, it  is  rubber  stamped  on  its  back  in  the  upper  right  hand 
corner  to  provide  the  following  information:  Date  received, 
order  number,  extensions  correct,  audited  by,  approved  by, 
and  the  account  number  to  be  charged. 

When  the  originals  and  duplicates  are  received,  the  originals 
are  first  assorted  by  their  group  classification  numbers  and 
each  group  is  arranged  in  numbered  sequence.  The  invoices 
are  verified  for  their  extensions,  stamped  and  placed  on  the 
arch  of  an  open  board  file.  They  are  then  entered  on  the 
Figure  Analysis  Book  and  ticked  thus  (\/).  After  this 
operation  they  are  posted  to  the  Accounts  Payable  Ledger. 
The  tick  showing  entry  on  the  Figure  Analysis  Book  is 
crossed  when  the  entry  is  posted  to  Accounts  Payable,  hi 
this  manner  indicating  that  the  invoice  has  been  charged 
to  cost,  and  set  up  as  a  liability  on  the  books  of  account. 

The  duplicate  invoices  are  assorted  in  the  alphabetical 
order  of  vendors'  names,  then  punched  and  put  on  the  arch 
of  a  board  file  awaiting  the  receipt  of  the  triplicate  copy  of 
the  order,  which  acts  as  a  material  receipt.  This  receipt  is 
checked  with  the  duplicate  invoice,  and  if  found  in  agreement 
the  two  papers  are  attached  and  transferred  to  another  file, 


HANDLING  PURCHASE  AND  STORE  ROOM  ORDERS       79 

which  constitutes  completed  orders  and  duplicate  invoices 
to  cover.  The  bills  on  this  last  named  file  are  used  to  check 
the  entries  on  the  Accounts  Payable  Ledger  which  have  been 
made  daily  from  the  original  invoices.  By  marking  the 
entry  on  the  Ledger  Account  "A,"  that  entry  is  recognized 
as  an  approved  liability  ready  for  liquidation.  The  original 
invoices  are  filed  in  pastboard  sliding  box  binders  (one  for 
each  contract)  marked  with  the  contract  number,  and  the 
duplicates,  with  completed  orders  attached,  are  filed  in  the 
same  kind  of  box  in  the  alphabetical  order  of  vendors'  name. 
This  method  of  filing  gives  two  sources  of  reference  for  the 
same  information — one  according  to  the  vendors'  names,  and 
the  other  by  the  order  and  classification  number. 

Method  of  Recording  Sub -Contracts. — When  part  of  the 
work  is  not  in  the  general  contractors'  line,  yet  is  covered  by 
his  contract,  he  sub-lets  it  and  such  cost  is  classified  as 
material.  At  the  end  of  the  month,  the  sub-contractor  makes 
a  requisition  for  payment  of  the  work  performed,  and  as 
already  stated  if  the  contract  between  the  owner  and  the 
general  contractor  calls  for  a  retention  of  a  certain  per  cent 
on  the  amount  requisitioned,  the  sub-contract  should  be 
subject  to  the  same  condition,  if  possible. 

Large  contracting  concerns  usually  keep  an  individual 
ledger  record  of  these  sub-contracts  and  extra  work  orders. 
An  account  on  the  General  Ledger  entitled  Deferred  Contract 
Cost  is  charged  with  the  full  amount  when  on  a  lump  sum 
basis,  and  the  sub-contractor's  personal  account  is  credited. 
When  the  sub-contractor  makes  a  requisition  for  payment  at 
the  end  of  the  month,  a  journal  entry  is  made  charging  his 
personal  account  on  the  Sub-Contract  Ledger  and  Accrued 
Contract  Cost  "  Material "  on  the  General  Ledger,  at  the  same 
time  crediting  Deferred  Contract  Cost  on  the  General  Ledger, 
and  the  sub-contractor's  account  on  the  Accounts  Payable 
Ledger  for  the  amount  requisitioned.  This  latter  entry 
is  thus  treated  like  an  ordinary  vendor's  invoice  to  be  liqui- 
dated, less  the  retention.  If  all  classes  of  contract  liability 
are  recorded  in  this  way  (even  those  that  are  billed  each  month) , 


80  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

they  are  absorbed  in  cost,  and  a  current  liability  is  created 
by  this  method  of  transfer  until  the  sub-ledger  is  completely 
cleared. 

A  less  complex  way  of  handling  this  class  of  record  would  be 
to  charge  a  general  account  of  Deferred  Cost,  and  credit  the 
value  to  a  personal  account  in  the  Accounts  Payable  Ledger, 
as  unearned.  When  a  requisition  for  payment  is  received, 
an  account  for  the  same  person  should  be  opened  on  the  next 
page  following,  as  earned,  and  the  amount  of  the  requisition 
posted  to  it  as*  a  credit,  Accrued  Contract  Cost  being  debited 
for  the  same  amount.  Then  debit  Account  Payable  "Un- 
earned" and  credit  Deferred  Contract  Cost. 

For  example  assume  that  part  of  a  contract  for  $200,000  is 
sub-let  for  $30,000.  Then  the  first  entry  would  be:— 

Deferred  Contract  Cost $30,000 

To  Accounts  Payable  (John  Smith  &  Co.  "Un- 
earned")   $30,000 

Contract  given  to  John  Smith  &  Co.     Sub  to 

Contract  575. 

If  at  the  end  of  the  month  John  Smith  &  Co.  make  requisi- 
tion for  $5,000  worth  of  work  performed,  the  following  transfer 
should  be  made  by  journal  entry  attached  to  the  requisition: 

Accrued  Contract  Cost $5,000 

Accounts  Payable 5,000 

John  Smith  &  Co.  "Unearned" 

To  Deferred  Contract  Cost $5,000 

Accounts  Payable 5,000 

John  Smith  &  Co.  "Earned" 
Transfer  to  accrue  cost  to  the  amount  of  his 
requisition. 

When  the  requisition  is  paid  it  is  treated  as  follows: 

Accounts  Payable $4,500 

(John  Smith  &  Co.  "Earned") 

To  Cash $4,500 

Payment  of  requisition,  less  10  per  cent  retention. 


HANDLING  PURCHASE  AND  STORE  ROOM  ORDERS       81 


If  the  amount  of  $30,000 
is  charged  at  once  to  the 
cost  of  the  contract,  this 
would  be  wrong  in  theory, 
as  the  cost  is  overstated  to 
the  extent  of  the  unfinished 
value  of  the  sub-contract, 
and  that  value  would  have 
to  be  excluded  from  the 
general  contractor's  requisi- 
tion on  the  owner;  but,  by 
charging  the  cost  for  the 
amount  of  the  requisition 
only,  the  cost  is  accrued  as 
though  it  were  a  direct  pur- 
chase, or  materials  taken 
from  the  store  room,  and  in 
that  way  an  advance  charge 
to  cost  is  avoided. 

It  often  happens  that  the 
owner,  for  whom  the  general 
contractor  is  doing  a  big  job, 
will  want  to  know  the  condi- 
tion of  the  liability  to  sub- 
contractors. The  general 
contract  or  must  then  submit 
a  schedule  made  according 
to  that  of  From  43.  Such 
a  request  is  most  likely  to 
be  made  by  an  owner  who 
is  financing  a  project  under  a 
fixed  fee  or  cost  plus  con- 
tract basis. 

Issuance  and  Control  of 
Stores. — As  stores  represent 
cash  they  should  be  con- 
trolled by  means  of  a  proper 


82  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

system  of  records.  Leakages  should  no  more  be  tolerated 
in  the  contracting  business  than  in  a  manufacturing  business 
where  employees  are  held  to  strict  accountability.  A  perpet- 
ual inventory  should  be  operated  at  cost  by  means  of  the  Store 
Ledger  sheets  illustrated  in  Form  9  to  which  all  goods  received 

STORE  ROOM  ORDER 

L.  K.   COMSTOCK  &   CO.   INC.    CONTRACTORS  DATE  19 


DELIVER  TO 


MATERIAL 


DEBIT 

N  OIL:  II 

AMOVNT 

CREDIT 

M'MBER 

AMOUNT 

CONTRACT 

CONTRACT 

JOB 

JOB 

GENERAL  EXPENSE 

GENERAL  EXPENSE 

STORE  ROOM 

STORE  ROOM 

DESCRIPTION 

UNIT 

QIANT 

PRICE 

AMOUNT 

~-~ 

ORDERED  BY 


DELIVERED  BY 


FOREMAN  MATERIAL  CLEKK 

RECEIVED  BY  APPROVED  BY 


FORM  10. 

should  be  charged  and  all  issued  credited.  The  sheets  should 
be  headed  with  the  name  or  description  of  the  material  and 
its  classification  number.  Compartments  or  bins  hi  the 
storeroom  should  bear  the  same  number  so  that  when  putting 
in  or  taking  out  material  they  can  be  readily  located. 

The  store  room  orders  illustrated  in  Form  10  are  made  up 
in  pads  of  100  sets  and  are  issued  in  sets  of  three.  The 
original  goes  to  the  store  room  clerk  for  entry  on  the  ledger; 
the  duplicate  is  sent  to  the  accounting  office,  and  the  tripli- 


HANDLING  PURCHASE  AND  STORE  ROOM  ORDERS       83 

cate  is  kept  on  file  by  the  foreman  on  the  job.  The  foremen 
usually  make  out  the  store  room  orders  and  a  register  should  be 
kept  of  the  numbers  of  the  orders  on  the  pads  supplied  to 
them.  The  pads  should  be  issued  consecutively  and  those 
returned  should  be  reissued  until  all  numbers  are  absorbed. 
Any  missing  numbers  should  be  accounted  for.  The  duplicate 
copy  of  the  order  sent  to  the  accounting  department  is  priced 
by  the  store  room  clerk  thus  insuring  that  the  same  charge 
made  to  the  Stores  Ledger  is  also  entered  on  the  Figure 
Analysis  Book. 

Transfer  Tickets. — In  a  large  contracting  business  many 
transfers  are  made  between  jobs  and  to  avoid  confusion  such 
transfers  are  usually  made  out  on  store  room  orders.  The 
foreman  on  the  job  from  which  a  transfer  of  material  is  made 
makes  out  a  ticket  charging  the  number  of  the  job  receiving 
the  material.  The  original  goes  to  the  job  charged,  the  dupli- 
cate is  sent  to  the  accounting  department  and  the  triplicate 
copy  is  retained  by  the  foreman. 

Time  Sheets  and  Foremen's  Reports. — In  the  contracting 
business  perhaps  more  than  in  any  other  a  great  deal  of 
responsibility  falls  upon  foremen  and  much  of  the  detail 
clerical  work  must  be  entrusted  to  them.  There  is  always  a 
foreman  for  every  type  of  work  and  on  large  jobs  in  which 
many  men  are  engaged  on  similar  work  they  are  split  up  into 
gangs  each  in  charge  of  a  foreman.  If  the  foreman1  has  the 
requisite  clerical  ability  he  makes  out  the  weekly  time  sheet 
showing  the  detail  of  the  total  wages  due  to  the  men  under 
his  charge  and  also  a  report  of  the  total  materials  requisitioned 
and  received.  He  is  also  responsible  for  turning  in  vouchers 
covering  the  expenses  incurred.  Almost  every  contractor 
has  his  own  ideas  about  the  construction  of  the  forms  required 
to  collect  the  detail  labor  and  expense  charges  and  the  ruling 
of  such  forms  must  provide  and  serve  the  purpose  of  vouchers 
for  all  labor  and  direct  expense  charges,  therefore  they  are 
illustrated  in  Form  42  in  recapitulated  form.  The  object  of 
these  vouchers  is  to  furnish  the  accounting  department  with 
weekly  reports  of  labor  and  expense,  which  reports  are  sum- 


84     PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


marized  on  a  "  Labor  and  Expense  Distribution  Sheet ' '  on  which 
the  detail  charges  to  contracts,  jobs  and  General  Expense  are 
listed  in  columns  to  be  used  as  a  posting  medium  for  the  labor 
and  expense  totals  accumulated  in  the  Figure  Analysis  Book 
as  follows: 

SUMMARY  OF  PAYROLL  AND  EXPENSE 
For  week  ending  Wednesday,  —  — ,  19 — 


Distribution 

Time  Sheet  No. 

Contracts 

Jobbing 

General 

Labor 

Ex- 

Labor 

Ex- 

Labor 

Ex- 

pense 

pense 

pense 

201                I  1,272.46 

127.60 

202                     947.32 

47.96 

207                  2,247.80 

340.50 

210 

1,247.48 

72.90 

5400 

375.42 

13.46 

5402 

275.60 

22.00 

5407 

75.80 

12.20 

C    13 

14.60 

2.00 

C  121 

25.00 

.87 

C212 

46.00 

9.04 

Contract  Labor  

5,715.06 

Expense  

588.96 

Jobbing  Labor 

726.82 

Expense.  .  .  . 

47.66 

General  Labor  

85.60 

Expense  

11.91 

Total          

7,176.01 

Check  t 

o  Paym 

aster. 

FORM  42. — Weekly  Payroll  Summary. 


This  shows  the  procedure  to  be  followed  hi  making  the 
recapitulation  of  all  time  and  expense  reports  turned  in  by 
the  foreman  on  all  work  of  a  local  nature,  since  such  pay 


HANDLING  PURCHASE  AND  STORE  ROOM  ORDERS       85 

envelopes  are  put  up  by  the  main  office  of  the  general  con- 
tractor. All  out-of-town  jobs  are  paid  for  by  check  for  the 
total  labor  and  expense  as  reported  by  the  foreman  on  each 
job,  which  check  he  deposits  in  the  bank  to  his  fund  account 
and  then  draws  the  cash  to  fill  the  pay  envelopes  included 
in  the  time  and  expense  sheets  for  which  he  was  reimbursed. 

Where  the  contractor  is  a  big  operator,  these  recapitulations 
consist  of  a  great  number  of  items;  still  it  is  the  most  condensed 
way  they  can  be  handled  to  get  the  items  for  distribution  on 
the  Figure  Analysis  Book  each  week,  and  which  are  finally 
assembled  into  one  posting  amount  for  each  contract  each 
month.  The  total  of  all  the  items  on  the  Figure  Analysis 
Book  gives  the  amount  to  clear  the  Payroll  and  Expense 
Account  on  the  General  Ledger  (to  which  all  checks  to  the 
Paymaster  and  Foremen  have  been  charged  as  a  deferred 
expenditure)  and  charge  each  control  of  Contract  and 
Jobbing  Cost,  and  General  Expenses,  as  before  stated. 

Record  of  Purchase  Prices. — In  the  contracting  business 
a  record  of  prices  on  purchases  is  an  important  adjunct  to 
the  accounting  system.  This  record  should  be  kept  on  cards 
arranged  in  alphabetical  order  according  to  the  name  of  the 
material.  Each  card  should  show  the  unit  price  paid  the 
supplier,  his  name,  and  the  date  of  the  invoice.  Such  a 
file  will  be  valuable  as  a  tune  saver  when  pricing  time  and 
material  or  jobbing  bills  to  customers  and  also,  as  a  means  of 
comparing  prices  at  different  later  periods  when  issuing 
purchase  orders.  The  same  information  can  be  found  in  the 
store  room  ledger,  but,  as  access  to  that  book  is  not  always 
convenient,  it  is  advisable  to  keep  a  separate  record  in  the 
general  accounting  office  as  suggested  above. 

Methods  of  Filing  the  Records. — A  rule  of  first  importance 
in  the  filing  of  vouchers  and  original  papers  is  that  no  docu- 
ment should  be  filed  until  it  has  been  covered  by  billing;  and 
to  show  that  it  has  been  billed  the  date  billed  should  be 
stamped  thereon  in  a  conspicuous  place.  Bills  are  usually 
made  out  concurrently  with  the  entry  of  the  voucher  on  the 
Figure  Analysis  Book. 


86      PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

In  no  business  is  the  careful  and  systematic  filing  of  papers 
more  important  that  in  the  contracting  business.  For  this 
reason  a  summary  is  given  below  of  a  number  of  practical 
suggestions  which  have  proved  their  value  in  the  author's 
accounting  experience: 

1.  Purchase  orders  should  be  filed  with  the  duplicate  invoice  in 
the  order  of  vendors'  names  and  where  there  is  more  than  one  invoice 
for  an  order,  the  invoices  should  be  grouped  and  numbered  from  one  up. 

2.  Store  room  orders  and  transfer  tickets  are  numbered  in  con- 
secutive order  by  a  machine,  which  number  is  noted  on  the  records. 
They  are  filed  in  packages  of  100,  and  in  even  breaks — 1  to  99,  100  to 
199,  200  to  299,  and  so  on. 

3.  Contract  agreements  should  be  filed  in  manilla  folders  of  a  size 
large  enough  to  take  them  flat.     The  folders  are  numbered  in  con- 
secutive order  the  same  as  the  contracts,  and  all  extra  orders  begin 
at  number  1  prefixed  by  that  of  the  contract  Number.     Deductions 
are  numbered  in  the  same  sequence  as  those  of  the  extra  orders  and 
they  are  filed  in  the  same  folder  attached  to  the  original  contract  in 
consecutive  order  of  their  numbers.     The  contracts,  extra  orders  or 
deductions  are  valued  when  accepted,  and  if  they  are  not  rendered  by 
the  customer  in  duplicate,  a  debit  or  credit  memo  should  be  made  in 
the  form  of  a  copy,  showing  the  date,  number,  name  of  customer  and 
amount.     They  make  posting  mediums  to  the  customer's  accounts  for 
memorandum  entries  and  advance  charges  and  credits  as  follows: 

If  for  other  than  a  lump  sum  contract,  it  is  a  memo  only  which  is 
absorbed  by  bills  to  the  customer  for  work  performed.  If  it  is  a  lump 
sum  contract  it  is  a  charge  in  advance  to  the  customer,  which  is  absorbed 
by  a  slide  or  memorandum  entry  for  the  monthly  "cost  in,"  plus  10 
per  cent. 

4.  All  bills  rendered  to  customers  are  made  in  sets  of  3 

1.  Original  goes  to  customer. 

2.  Duplicate  is  posting  medium,  filed  numerically. 

3.  Triplicate  is  filed  alphabetically,  with  data  attached. 

5.  All  invoices  from  vendors  and  others  must  be  rendered  in  sets  of  2 

1.  Original  is  posting  medium,  filed  numerically. 

2.  Duplicate  is  checking  medium,  filed  alphabetically. 

6.  The  author  would  suggest  Y.  &  E.  sliding  box  pasteboard  files 
with  an  arch,  which  requires  each  bill  or  invoice  to  be  punched.     Each 
file  will  accomodate  500  bills,  and  they  should  be  grouped  as  follows: 
26 — 1  for  each  letter  of  the  alphabet — bills  to  customers 

26 — 1  for  each  letter  of  the  alphabet — invoices  from  vendors  and  others 
1  for  each  contract  number — bills  to  customers 


HA\DLI.\<;  PURCHASE  AND  STORE  ROOM  ORDERS       87 

1  for  each  contract  number — invoices  from  vendors  and  others 
1  for  jobbing — bills  to  customers. 
1  for  jobbing — invoice*  from  vendors  and  others 
1  for  store  room — invoices  from  vendors  and  others 
1  for  general  expense — invoices  from  vendors  and  others 
1  for  general  journal  entries 

and  the  customary  correspondence  files  consisting  of  manila  folders 
in  sliding  drawer  cabinets. 

All  original  (first  copy)  bills  and  invoices  are  first  assorted  in  the 
order  of  account  numbers  then  placed  on  open  board  arch  files,  so  they 
can  be  posted  and  entered  on  the  Figure  Analysis  Book  daily.  After 
this  work  is  performed  they  are  placed  in  the  permanent  box  files. 
Manila  folders  should  be  filed  in  a  sliding  drawer  cabinet,  size  12  in. 
wide,  16  in.  deep  by  2  ft.  long.  A  short  interval  of  time  after  the  con- 
tract or  job  has  been  completed,  the  vouchers  can  be  abstracted  as 
dead  records,  and  the  files  used  for  live  accounts  by  giving  them  a  new 
number. 

7.  Time  and  expense  sheets  for  payrolls  should  be  filed  in  a  sliding 
drawer  cabinet  with  the  latest  date  on  top,  and  the  drawers  should  be 
about  1  in.  in  length,  and  1  in.  in  width  larger  than  the  voucher.     They 
should  be  about  3  in.  deep  divided  into  two  compartments,  one  for  time 
sheets  and  the  other  for  expense  reports.     A  cabinet  with  drawers 
7  in.  long,  5  in.  wide  and  3  in.  deep,  double  compartment,  would  be 
about  6  ft.  wide,  5  ft.  high  and  2  ft.  deep.     A  drawer  is  given  each  con- 
tract, which  is  designated  by  a  card  placed  in  the  rack  on  the  front  of 
the  drawer  showing  its  number.     When  a  contract  or  job  is  finished  the 
vouchers  are  withdrawn  as  dead  records  and  the  drawer  is  used  for  a 
new  job,  and  at  the  same  time  the  drawer  is  shifted  to  its  proper  numer- 
ical location,  according  to  the  consecutive  order  of  the  new  contract 
number. 

8.  The  jobbing  time  sheets  and  expense  reports  are  arranged  in  the 
sequence  of  job  numbers  and  are  filed  in  the  drawer  in  weekly  lots. 
Store  room  and  general  expense  sheets  are  treated  in  the  same  way. 
It  is  good  practice  to  put  an  elastic  band  around  each  job  as  a  drawer 
may  accommodate  two  or  more  weeks  vouchers,  and  it  would  facilitate 
matters  to  have  two  cabinets,  one  for  contracts,  and  the  other  for  job- 
bing, store  room  and  general  expense  vouchers. 

Handling  Expense  Items. — Workmen's  Compensation  and  Public 
Liability  Insurance  is  billed  for  the  premium  earned  every  3  months. 
This  must  be  distributed  to  each  contract,  the  jobbing  work  as  a  whole, 
and  General  Expense.  The  insurance  rates  are  different  in  almost 
every  state  and  the  premium  is  invoiced  according  to  the  labor  per- 
formed in  each  state  at  the  state  rate.  The  labor  for  each  contract  is 
derived  from  the  monthly  charges  on  the  Cumulative  Contract  Ledger 


88  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


and  these  are  the  figures  taken  by  the  Insurance  Company's  auditor. 
He  tabulates  them  according  to  the  states  and  leaves  a  carbon  copy 
with  the  bookkeeper  in  whose  presence  the  audit  is  made.  On  the 
arrival  of  the  bill  it  is  checked  to  the  carbon  copy  and  then  distributed 
and  treated  as  a  direct  expense  to  the  work. 

Traveling  advances  made  to  the  various  representatives  of  the  busi- 


FROM 


STATEMENT  OF  TRAVELING  EXPENSE 


TO 


BY 


TO  L.  K.  COMSTOCK  &  CO.  NEW  YORK.  N.  Y. 


TOTAL  ADVANCED 


TOTAL  EXPENSE 


AMOUNT  DOE 
AMOUNT   BETURITED 


CHARGE  ACCOUNT  OF 


CONTRACT 


JOBBING 


CHECKED  BY 


AMOUNT 


AMOOST 


AilOUST 


BOOKKEEPEB 


APPROVED  BY 


AUDITOR 


FORM  11. 

ness  must  be  accounted  for  at  the  end  of  each  trip,  and  Form  11  is 
arranged  to  record  the  detail  of  the  expense  incurred  and  advances 
made  covering  the  period  accounted  for.  This  form  should  be  printed 
on  a  heavy  durable  paper,  so  that  the  party  to  whom  the  advance  was 
made  can  carry  it  in  his  pocket  in  three  folds.  The  sheet  is  ruled  to 
provide  for  31  days  and  the  expenses  are  to  be  entered  at  the  end  of  each 
day  and  carried  into  the  daily  total.  When  the  trip  is  ended  the  columns 
of  each  nature  of  expense  are  footed,  the  totals  of  which  will  collectively 


HANDLING  PURCHASE  AND  STORE  ROOM  ORDERS       89 

equal  the  total  for  all  the  days.  This  last  total  is  brought  down  under- 
neath the  total  advance  made,  and  any  excess  over  the  advance  is  the 
amount  due  from  the  contractor,  and  any  amount  under  is  to  be  returned 
to  the  contractor. 

The  total  expense  is  then  apportioned  to  the  proper  accounts  to  be 
charged  and  the  statement  becomes  a  journal  entry  to  credit  the  personal 
account  that  has  been  charged  with  the  advance. 


CHAPTER  VII 
RECORDING  INCOME  AND  EXPENSE 

"Rilling  Sales. — Bills  for  contract  work  other  than  a  lump 
sum  nature  should  have  the  items  tabulated  in  the  order  of 
the  date  of  performance  of  the  work  and  grouped  in  the  order 
of  (1)  Material,  (2)  Labor  of  foremen  journeymen  and  appren- 
tices, and  (3)  Direct  expense.  To  the  total  of  these  items  is 
added  the  charge  for  supervision  and  the  amount  of  profit 
agreed  upon,  thus  making  up  the  bill  in  full.  Unit  price 
contracts  are  billed  in  this  way  at  the  end  of  each  month  or 
other  agreed  period  for  the  total  units  installed  at  the  agreed 
price  per  unit.  Cost  plus  a  fixed  fee  contracts  are  billed  for 
the  actual  cash  disbursed  on  the  work  plus  the  fee  or  percen- 
tage on  cost  agreed  upon  between  owner  and  contractor.  An 
upset  limit  contract  is  billed  for  the  work  performed  up  to  an 
agreed  amount  and  cannot  be  billed  for  any  cost  exceeding 
the  upset  price.  The  method  of  accounting  for  such  contracts, 
which  is  usually  done  in  the  field,  will  be  described  in  Part  II. 
The  discussion  which  immediately  follows  is  concerned  with 
methods  of  billing  and  recording  the  income  on  lump  sum, 
other  contracts  and  jobbing  work. 

Lump  Sum  Requisitions. — When  the  work  on  a  lump  sum 
contract  extends  over  several  months  usually  an  arrangement 
is  made  with  the  owner  for  payments  at  the  end  of  each  month 
based  on  the  amount  of  work  performed.  In  drawing  up  a 
requisition  for  payment  the  costs  for  the  current  month  are 
taken  from  the  Figure  Analysis  Book,  or,  if  the  costs  include 
those  of  prior  months,  the  figures  are  taken  from  the  Cumula- 
tive Cost  Ledger  and  from  the  total  book  cost  against  the 
customer  such  values  are  deducted  as  are  included  in  the 
material  which  has  been  delivered  to  the  job  but  which  has 
not  yet  been  installed.  The  result  is  the  amount  of  actual 
cost  of  work  performed  to  date.  This  latter  amount,  aug- 

90 


RECORDING  INCOME  AND  EXPENSE  91 

merited  by  the  profit  adjustment,  usually  taken  at  10  per  cent 
on  cost,  gives  the  cost  of  work  performed  and  subject  to  requi- 
sition. This  amount  must  be  reduced  by  the  amount  of 
the  retention  the  owner  holds  back  until  the  final  payment — 
usually  ranging  from  5  to  15  per  cent  on  the  cost  subject  to 
requisition.  When  the  amount  of  cash  collected  is  deducted 
from  this  net  amount  due,  the  result  represents  the  value 
collectible  on  this  requisition.  The  amount  of  cash  paid  to 
date  is  secured  from  the  owner's  account  on  the  receivable 
ledger,  and  this  forms  the  second  section  of  the  requisition, 
which  ordinarily,  is  laid  out  as  follows: 

First  Section 

Line  1 — Original  Contract  Price $100,000 

2— Extra  Work  Orders 20,000 


3— Total 120,000 

4 — Deduction  Orders 2,000 


5— Total  Value  of  Contract $1 18,000 

Second  Section 

Line  6— Cost  of  Work  In $  70,000 

7 — Retention  10  per  cent 7,000 


8— Accrued  Cost  Due 63,000 

Less  9 — Claims  for  omission $      150 

Cash  paid  to  date 55,000        55,150 


10 — Amount  due  on  this  requisition $     7,850 

The  first  section  is  compiled  from  the  ledger  account  of 
the  owner,  and  shows  the  amount  of  the  original  contract 
price,  extra  work  orders,  and  cancellations  entered  on  the 
debit  side  of  the  account. 

These  requisitions  must  be  made  out  before  the  totals  for 
the  current  month  are  in  the  cost,  because  most  owners  want 
their  demands  for  payment  to  be  presented  on  or  before  the 
first  of  the  month  following  the  work;  this  condition  makes 
it  hard  for  the  contractor,  compelling  him  to  go  into  inter- 
period  costs  to  get  his  cost  to  date.  Sometimes  an  owrner  will 


92  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

not  pay  a  requisition  which  comes  in  on  the  fifth  of  the  month 
or  later,  and  the  contractor  is  then  compelled  to  carry  his 
investment  over  to  another  month ;  naturally,  this  is  a  serious 
handicap  to  him  in  securing  current  funds  to  meet  his 
obligations. 

Fee  and  Plant  Rental  Requisitions. — If  the  contract  fee  and 
plant  rental  are  not  included  in  the  contract  price  they  are 
covered  by  separate  requisitions, — one  for  the  fee  and  the 
other  for  the  plant  rental.  The  original  amount  agreed  upon 
is  increased  by  extra  work,  and  is  decreased  by  cancellations. 
The  form  used  for  lump  sum  contracts  may  be  used  for  this 
class  of  requisition  as  well.  The  first  section  provides  for 
the  original  price  plus  any  extra  fee  and  minus  any  deductions, 
thus  showing  the  amount  obligated  for.  The  second  section 
provides  for  the  amount  of  fee  earned,  which  is  the  total  fee 
as  shown  in  section  one  multiplied  by  the  percentage  which  the 
work  performed  bears  to  the  estimated  value  of  the  whole 
cost  of  the  work.  This  amount  is  then  reduced  by  the  reten- 
tion reserved  until  completion  and  acceptance  of  the  work. 
The  amount  collectible  on  this  requisition  is  this  last  mentioned 
amount  further  reduced  by  any  payments  which  may  have 
been  made  in  prior  periods.  Thus,  the  construction  of  the 
two  requisitions  is  parallel ;  one  is  a  fixed  price  for  the  whole 
cost  of  the  contractor,  and  the  other  is  a  fixed  fee,  measured 
on  the  owner's  cost  of  work  performed  by  the  contractor. 

Schedule  of  Accounts  Receivable. — On  completion  of  the 
statements  they  are  arranged  in  alphabetical  order  and  listed 
in  that  order  on  a  schedule  of  collectible  accounts  for  the 
following  month  showing  the  number  of  the  contract,  the 
name  of  the  owner,  the  class  of  contract,  and  the  amount; 
then  follows  a  margin  after  the  amount  in  a  main  and  sub- 
caption  for  collections  on  account  and  in  full. 

All  statements  for  jobbing  work  are  footed  for  their  total, 
and  entered  on  the  schedule  as  miscellaneous  items  for  collec- 
tion. As  these  items  sometimes  comprise  hundreds  of  small 
amounts  which  do  not  need  the  individual  watching  that 
contract  payments  require  (in  fact  a  payment  of  one  requisi- 


RECORDING  INCOME  AND  EXPENSE  93 

tion  on  a  contract  may  equal  all  the  jobbing  statements), 
it  is  not  of  such  importance  to  list  all  the  accounts  for  which  a 
statement  is  rendered,  since  they  are,  as  a  rule,  paid  in  a 
prompt  manner  upon  receipt  of  the  statement. 

These  schedules  are  essential  hi  making  up  the  forecast  of 
receipts  to  meet  current  obligations,  and  to  keep  in  touch  with 
delinquent  customers;  the  payments  are  marked  off  the  sched- 
ule daily  so  as  to  keep  the  collection  record  up  to  date. 

Measuring  Earned  Sales. — Contractors  as  a  rule  find  it 
difficult  to  determine  the,volume  of  business  accruing  monthly, 
but  there  is  no  reason  why  this  information  cannot  be 
approximately  calculated.  The  term  "approximate"  is  used 
advisedly  for  the  reason  that  the  volume  of  accrued  business 
cannot  of  course  be  computed  to  the  exact  cent.  The  diffi- 
culty arises  with  lump  sum  contracts,  for  the  reason  that  the 
true  profit  is  not  known  until  the  cost  is  all  in  and  the  work 
is  completed.  In  all  other  classes  of  contracts  the  profits 
accrue  as  the  work  proceeds  and  is  shown  in  the  bills  rendered 
to  customers.  If,  for  instance,  from  the  total  billing  for 
jobbing  work  charged  to  Accounts  Receivable  and  credited 
to  Jobbing  Sales  is  deducted  the  prime  cost  of  these  sales,  the 
difference  between  cost  and  sales  is  the  gross  profit.  The 
determination  of  the  profit  on  other  contracts  with  the  excep- 
tion of  those  of  a  lump  sum  nature  is  equally  simple. 

The  following  journal  entries  demonstrate  the  method  of 
approximately  determining  the  profit  made  on  lump  sum 
contracts  for  $100,000. 

Accounts  Receivable $100,000 

To  Unearned  Contract  Sales $100,000 

If  at  the  end  of  the  month  the  cost  amounts  to  $10,000,  the 
following  journal  entry  is  required: 

Unearned  Contract  Sales $11,000 

To  Earned  Contract  Sales $11,000 

Contract  476  Cost  in $10,000 

Plus  Profit  10  per  cent 1,000 

Monthly  proportion  due  as  shown  by 
requisition. 


The  difference  between  the  price  of  the  contract  and  the 
Earned  Contract  Sales  of  $89,000,  is  the  advance  Unearned 
Contract  Sales  to  be  deducted  from  the  balance  of  the 
Accounts  Receivable  Control,  to  get  the  true  collectible 
accounts  from  customers  as  of  date. 

Now,  suppose  on  completion  of  the  contract  it  is  found  that 
the  cost  has  reached  $95,000.  This  amount  plus  10  per  cent 
adjustment  would  make  the  credit  taken  for  Earned  Con- 
tract Sales  $104,500,or  an  excess  of  $4,500  over  the  price.  In 
such  a  case  the  credit  would  have  to  be  adjusted  to  $100,000, 
hence  this  entry : 

Earned  Contract  Sales $4,500 

To  Unearned  Contract  Sales $4,500 

To  adjust  excess  credit  taken  on  former  account. 

If  the  reverse  of  this  happened  or  the  cost  taken  wras  $90, 000, 
plus  10  per  cent  profit  adjustment,  which  would  be  $99,000  for 
the  credit  of  Earned  Contract  Sales,  and  if  the  cost  was  all  in 
and  the  contract  completed,  the  following  journal  entry  would 
adjust  to  $100,000: 

Unearned  Contract  Sales $1,000 

To  Earned  Contract  Sales $1,000 

To  adjust  sales  taken  at  their  full  value. 

This  method  of  treating  sales  determines  as  nearly  as  pos- 
sible the  volume  of  business  accruing  each  month.  Any 
excess  or  shortage  is  adjusted  when  the  contract  is  finished, 
but,  for  the  purpose  of  accruing  it  at  current  periods,  it  is 
practically  exact  and  all  that  could  be  expected. 

Schedule  of  Cost  to  Finish. — The  estimated  cost  to  finish 
a  lump  sum  contract  is  calculated  in  the  following  manner. 
Assume  that  the  contract  price  is  $150,000  with  an  estimated 
return  of  at  least  10  per  cent  gross  profit.  Direct  cost  is 
thus  approximated,  its  amount  being  estimated  to  be  90  per 
cent  of  the  selling  price  which  in  this  instance  would  be 
$135,000.  Assume  also  that  there  is  a  cost  already  in  Dec.  31, 
1919  of  $38,760.  This  amount  is  therefore  deducted  (rounded 


RECORDING  INCOME  AND  EXPENSE  95 

off  to  $38,000  even)  which  leaves  $97,000  as  a  cost  to  be 
expended  to  finish  the  job.  While  $15,000  is  not  10  per  cent 
on  $135,000  cost,  the  selling  price  multiplied  by  90  is  used, 
instead  of  dividing  it  by  1.10  which  by  the  latter  basis  of 
figuring  would  put  the  cost  at  $136,363.63  -f-  10  per  cent  = 
$150,000.00.  The  basis  of  90  per  cent  of  the  sale  price  to 
arrive  at  cost  is  used  to  facilitate  the  calculation  of  the  cost 
to  finish,  as  it  is  easier  to  multiply  than  divide,  and  as  the 
figures  desired  are  only  an  approximate  forecast,  the  margin 
of  leeway  of  $1,363.63  by  taking  90  per  cent  of  sales,  may 
prove  right  in  the  final  analysis.  In  determining  the  cost  of 
unfinished  lump  sum  work  it  is  customary  to  anticipate  a 
minimum  gross  profit  of  10  per  cent. 

On  other  than  lump  sum  contracts,  the  estimated  cost  to 
finish  is  secured  by  taking  the  value  of  estimated  cost  of  work 
according  to  the  bid,  and  from  that  cost,  deducting  the  cost 
in,  and  the  balance  as  shown  will  be  the  estimated  cost  to 
finish. 

The  direct  cost  in,  and  the  amount  charged  to  customer,  is 
taken  from  the  customer's  record  of  cost  and  income  on  the 
Cumulative  Contract  Ledger,  but  the  cash  collected  on  account 
is  determined  from  his  account  on  the  Amounts  Receivable 
Ledger. 

To  get  the  amount  accrued  and  due  against  customer  the 
following  formula  is  used,  supposititious  figures  being  given  for 
illustration : 

Amount  charged  to  customers $3,410,478.28 

Less:  Estimate  to  finish $2,240,300.00 

10  per  cent  Profit 224,030.00      2,464,330.00 


Total  billed  and  requisitioned 946,148.28 

Less:  Cash  collected  on  account 780,225.28 


Amount  due  on  open  contract $    165,923.00 

This  should  be  shown  on  the  Balance  Sheet  as  a  current 
amount  and  as  part  of  the  Accounts  Receivable.  The  other 
receivables  are  those  from  closed  contracts  and  jobbing  work 


96     PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

remaining  unpaid,  as  shown  on  the  schedule  of  Accounts  Due 
from  Customers. 

Compilation  of  Schedule  of  Closed  Contract  and  Jobbing 
Work. — This  schedule  may  be  used  as  a  posting  medium  to 
close  out  the  accounts  of  cost  and  income  on  the  Cumulative 
Contract  Ledger  by  a  Profit  of  Loss  entry.  The  general 
journal  entry  transferred  to  Profit  and  Loss  would  be  as 
follows: 

Contract  Sales $116,590 

To  Profit  and  Loss $116,590 

Jobbing  Sales 17,780 

To  Profit  and  Loss 17,780 

These  entries  control  the  detail  postings  from  the  schedule 
to  the  auxiliary  records. 

It  is  one  of  the  characteristics  of  a  contract  and  jobbing 
business  to  have  an  individual  record  of  cost  and  income  for 
every  job  taken;  for  that  reason,  every  such  account  when 
closed  is  balanced  by  a  Profit  or  Loss  entry;  but  from  the 
system  as  outlined  in  this  work,  it  is  seen  that  the  cost  and  in- 
come of  each  job  are  collectively  controlled  by  a  general  ledger 
figure  which  is  derived  by  assembling  the  detail  amounts  into 
totals  in  the  Figure  Analysis  Book. 

Recording  Percentage  and  Fixed  Fee  Income. — When 
contracts  are  accepted  on  the  basis  of  a  percentage  on  cost  or 
for  a  fixed  fee  the  amount  of  the  percentage  or  fixed  fee  is  the 
net  income  to  the  contractor  and  this  amount  is  the  only  item 
of  record  that  it  is  necessary  for  him  to  make  on  his  general 
books.  Some  contractors  desiring  to  keep  a  record  of  the 
volume  of  work  performed,  incorporate  the  total  cost  and 
income  of  the  contract  on  their  books  of  account,  even  though 
no  actual  disbursement  is  made  from  their  funds.  As  copies 
of  all  vouchers  paid  on  the  field  are  sent  to  the  office  of  the 
general  contractor,  and  they  constitute  the  cost,  the  total 
value  that  has  been  paid  each  month  can.  be  made  into  a 
journal  entry  charging  Accrued  Contract  Cost  and  crediting 
Earned  Contract  Sales. 


RECORDING  INCOME  AND  EXPENSE  97 

If  the  work  is  being  done  under  a  cost  plus  agreement, 
the  percentage  earned  on  the  monthly  cost  is  then  charged  to 
the  owner's  account  in  the  Accounts  Receivable  Ledger  and 
credited  to  Earned  Contract  Sales.  This  last  account  will 
then  include  the  profit  in  the  total  sales  figure;  if  the  contract 
is  accepted  on  the  basis  of  cost  plus  a  fixed  fee  the  requisition 
for  the  payment  of  the  fee  is  treated  in  the  same  way.  When 
payment  is  made  Cash  is  debited  and  the  Accounts  Receivable 
column  is  credited. 

On  cost-plus-percentage  work  the  owrner  pays  the  field  agent 
for  the  amount  of  vouchers  he  has  liquidated  plus  the  per- 
centage. The  agents  fund  will  then  exceed  its  proper  amount 
to  the  extent  of  the  percentage.  The  agent  therefore  draws 
a  check  to  the  order  of  the  contractor  for  the  amount  due  to 
him,  and  in  that  manner  keeps  his  fund  at  the  proper  amount. 
If  the  work  is  on  a  cost  plus  fixed  fee  basis  the  owner  pays 
the  contractor  either  by  a  check  direct  for  the  amount 
of  the  fee  requisitioned,  or  through  the  field  agent,  treating  the 
requisition  as  a  voucher  covering  an  ordinary  vendor's  invoice. 

If  it  is  desired  to  have  the  charges  to  Accounts  Receivable 
reflect  the  same  amount  as  the  credit  to  Earned  Contract 
Sales,  the  journal  entry  would  have  to  include  both  cost  and 
the  percentage  or  fixed  fee  requisitioned. 

For  example,  take  a  contract  on  a  percentage  basis  for 
which  there  is  a  month's  cost  of  $80,000  at  5  per  cent  on  cost. 

Under  the  first  method  of  record  the  journal  entry  would 
be- 

Accrued  Contract  Cost $80,000 

Accounts  Receivable 4,000 

(Owner's  Name) 

To  Earned  Contract  Sales $84,000 

and  when  the  fee  is  paid 

Cash $4,000 

To  Accounts  Receivable 4,000 

Owner's  Name 

Under  the  second  method  of  record  the  journal  entries  would 
be— 


98     PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Accounts  Receivable §84,000 

To  Earned  Contract  Sales $84,000 

and 

Accrued  Contract  Cost $80,000 

To  Accounts  Receivable 80,000 

When  the  fee  is  paid 

Cash 4,000 

To  Accounts  Receivable 4,000 

The  writer  thinks  the  first  method  the  better  one,  as  the 
account  with  the  owner  then  shows  the  actual  amount  earned 
on  the  contract  and  the  cash  income.  This  amount,  divided 
by  the  rate  of  per  cent,  will  give  the  cost.  Fictitious  charges 
and  credits,  such  as  the  $80,000  cost  to  Accounts  Receivable 
to  offset  the  credit  to  Sales  are  thus  eliminated. 

Summary  of  Entries. — The  following  summary  outlines 
the  entries  required  to  record  the  income  accruing  from  each 
contract  and  job  in  operation. 

Credit:  Earned  Contract  Sales  with  the  monthly  cost  plus  10  per  cent 
on  all  set  price  contracts;  also  with  the  difference  between 
cost  plus  10  per  cent  and  the  agreed  price  on  completion  of 
the  contract. 

Debit:  Earned  Contract  Sales  for  any  excess  of  cost  plus  10  per  cent 
transferred  to  this  account  on  completion  of  the  contract  plus 
credit  in  red  ink  to  the  proper  internal  account  affected. 

Credit:  All  bills  rendered  to  customers  on  time  and  material  and 
upset  limit  contracts  during  the  month  to  Earned  Contract 
Sales. 

Credit :  All  bills  rendered  to  customers  on  cost  plus  contracts  to  Earned 
Contract  Sales. 

Credit:  Proportion  of  fee  requisitioned  on  all  fee  contracts  to  Earned 
Contract  Sales. 

Credit:  All  bills  rendered  to  customers  for  jobbing  work  performed  to 
Jobbing  Sales. 

Credit:  All  bills  rendered  to  parties  for  anything  which  is  extraneous 
to  the  profit  for  which  the  business  was  created,  or  the  reduc- 
tion of  some  expense  outlay,  to  Miscellaneous  Receipts. 

All  bills  rendered  for  such  items  as  sub-rental  or  any  reduc- 
tion of  expense  are  made  in  original  and  duplicate.  The 
original  is  forwarded  to  the  person  for  whom  issued,  while  the 
duplicate  is  placed  on  an  arch  file  as  a  posting  medium,  after 


RECORDING  INCOME  AND  EXPENSE  99 

which  it  is  charged  to  the  proper  account  in  the  Accounts 
Receivable  Ledger  and  credited  to  the  account  to  be  negatived. 

General  Expense — Overhead  Distribution. — In  a  con- 
tractor's business  the  classifications  of  General  or  Overhead 
Expense  will  comprise  a  hundred  or  more  items  depending 
upon  the  volume  of  business  and  the  nature  of  the  work  done. 
As  every  text  book  on  accounting  discusses  the  nature  of 
expense  and  the  method  of  handling  it  and  as  the  problem  of 
expense  distribution  is  simplified  in  contracting  work  by  the 
fact  that  many  of  the  items  classed  as  expense  in  a  manu- 
facturing business  can  be  charged  direct  to  a  contract  or  job 
there  is  little  that  need  be  said.  The  general  procedure  is 
covered  by  the  rules:  (1)  Charge  the  contract  or  job  for  every 
item  possible;  (2)  Charge  General  Expense  for  the  balance. 
In  this  way  the  overhead,  subject  to  a  blanket  distribution,  is 
reduced  to  a  minimum. 

The  basis  on  which  General  Expense  is  to  be  charged  to 
contracts  and  jobs  may  be  either  cost  or  sales  though  in  the 
opinion  of  the  writer  the  cost  basis  is  to  be  preferred. 

The  reason  for  taking  cost  as  a  basis  for  measuring  the 
proportion  of  burden  chargeable  to  contracts,  is,  that  it  shows 
the  value  expended  to  make  the  sales,  and  the  unassigned 
expense  should  be  applied  accordingly.  Management  and 
effort  which  is  productive  of  profit,  should  not  be  subject  to  a 
non-productive  cost.  To  distribute  it  on  the  basis  of  sales  is 
both  unfair  and  unduly  generous ;  to  distribute  it  on  the  basis 
of  cost  and  sales  is  wrong  in  principle;  but  to  distribute  it 
on  the  basis  of  cost  is  fair  and  as  it  should  be. 

For  example,  take  the  following  cost  and  sales  over  which  a 
burden  of  $1,000  is  to  be  pro-rated. 

1.  Sales,  A $12,000 

Cost 10,000    Profit  $2,000 


2.  Sales,  B $13,000 

Cost 10,000    Profit    3,000 

3.  Profit,  A 20  per  cent 

Profit,  B 30  per  cent 


100  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

The  result  would  be: 

1.  On  the  basis  of  sales,  A $480 

B 520     $1,000 


2.  On  the  basis  of  cost,  A $500 

B 500       1,000 


3.  On  the  basis  of  both,  A $400 

B 600       1,000 


The  first  shows  an  undercharge  to  A,  and  an  overcharge  to 
B,  of  $20.  The  second  shows  an  equal  charge  to  each  conform- 
ing to  equal  costs  as  it  should  be.  The  third  is  wrong  in  theory 
and  is  not  worth  discussing. 

Sales  consist  of  three  elements,  namely;  cost  direct,  cost 
indirect  and  profit.  It  is  logical  to  consider  the-  first  and 
second  parallel  to  each  other,  and  that  is  why  the  direct  cost 
of  each  sale  should  be  increased  by  the  percentage  the  total 
indirect  cost  shows  when  it  is  divided  by  the  total  direct  Cost. 

Workmens'  Compensation. — One  item  of  General  Expense 
that  calls  for  brief  discussion  is  that  of  workmen's  compensa- 
tion and  public  liability  insurance.  This  expense  is  deter- 
mined quarterly.  At  the  end  of  every  3  months  the  Insurance 
Company  sends  its  representative  to  make  an  audit  of  the 
payroll.  The  insurance  rates  vary  in  different  states,  and  the 
amount  of  expense  to  be  charged  to  each  contract  is  the  amount 
of  labor  performed  for  the  period  audited,  multiplied  by  the 
premium  rate  of  the  State  in  which  the  work  was  performed. 

The  insurance  pob'cy  covers  all  classes  of  compensation 
connected  with  the  business  and  includes  wages  paid  for  labor, 
and  salaries  both  selling  and  administrative.  When  making 
the  audit,  the  representative  of  the  Insurance  Company  takes 
the  labor  cost  direct  from  each  contract  account  on  the 
Cumulative  Contract  Ledger,  and  groups  them  according  to 
States.  The  cost  is  made  to  this  ledger  in  one  total  each 
month.  Therefore,  if  the  audit  covers  the  months  of  January, 
February  and  March,  he  would  take  the  total  to  the  end  of 


RECORDING  IX  COME  A  XI)  EXPENSE  101 

March.  If  the  audit  is  for  April,  May  and  June,  the  total  to 
to  the  end  of  March,  deducted  from  the  total  to  the  end  of 
June  gives  the  labor  cost  on  that  contract  for  the  last  3- 
month's  period.  The  auditor  makes  a  carbon  copy  of  this 
abstract  analysis  of  groupings  by  States,  which  he  leaves  with 
the  Contractor's  accountant,  and  as  the  Insurance  Company 
makes  its  bill  from  the  analysis  as  reported  by  the  auditor, 
the  accountant  for  the  contractor  on  receipt  of  this  bill, 
distributes  each  State's  Insurance  Expense  to  the  direct 
expense  of  the  contract  on  the  basis  of  the  labor  cost. 

The  total  labor  for  jobbing  work  for  the  period  audited  is 
grouped  according  to  States,  so  as  to  get  the  value  of  the 
premium  charges  at  the  State  rate.  This  expense,  however, 
cannot  be  assigned  to  jobs.  They  are  so  numerous,  and  their 
proportion  of  cost  is  so  small,  that  the  labor  necessary  to  pro- 
rate it,  would  not  be  practicable.  Therefore,  it  is  treated  as 
a  General  Expense  item  spread  over  all  the  jobbing  work. 
When  the  General  Expense  is  assigned  to  each  State  cost,  the 
jobbing  work  performed  in  each  State  gets  its  proportionate 
share  of  burden. 

As  this  expenditure  puts  a  premium  on  labor  costs,  all 
bills  rendered  for  time  and  material  work  include  a  charge  for 
insurance  at  a  fixed  rate  of  percentage  over  the  value  of  the 
actual  labor  cost  embodied  in  the  bill.  This  percentage  is 
usually  based  on  the  average  rate  total  premium  as  shown  by 
the  bill  from  the  Insurance  Company  every  3  months  bears 
to  the  total  labor  cost  for  the  period. 

Instructions  for  Posting. — In  conclusion,  the  posting  routine 
is  reduced  to  a  brief  summary  as  an  aid  to  the  proper  record  of 
income  and  expense. 

1.  In  making  schedules  of  open  contracts  on  a  time  and  material 
basis  on  which  a  profit  is  taken,  only  include  the  cost  actually  covered 
by  billing.     All  other  classes  of  contracts  are  scheduled  for  the  cost  as 
shown  by  the  books. 

2.  When  making  postings  to  Accounts  Receivable  and  Accounts 
Payable  for  charges  to  customers  and  credits  to  vendors  or  others, 
respectively,  tick  the  same  amount  entered  on  the  Figure  Analysis 
Book.     This  will  show  that  both  debit  and  credit  have  been  posted. 


102  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

3.  When  entering  the  bank  withdrawals  on  the   Cash   Record  if 
there  is  more  than  one  bank,  have  each  bank  series  designated  by  an 
alphabetical  symbol  as  an  aid  to  the  distribution  of  the  checks  to  the 
various  bank  sections.     A  duplicate  deposit  slip  should  also  be  made 
out  in  the  accounting  department  for  the  assignment  of  the  receipts  to 
the  proper  bank  and  thus  prevent  translocation. 

4.  After  entering  the  vouchers  on  the  Figure  Analysis  Book  and 
posting  them  to  the  various  ledgers,  they  should  be  filed  immediately 
and  not  allowed  to  accumulate. 

5.  There  should  be  some  special  day  set  aside  each  month  to  pay 
all  bills  approved  as  shown  by  the  letter  "A"  on  the  Accounts  Payable 
Ledger,  preferably  in  the  middle  of  the  month.     By  this  method  there 
is  no  big  outstanding  list  of  checks  drawn  but  not  paid  by  the  bank, 
which  is  the  condition  when  making  the  bank  reconciliation  at  the  end 
of  the  month  should  the  payments  be  made  near  that  time. 

6.  When   checking  payments   made   to   creditors   in   the  Accounts 
Payable  Ledger  mark  the  items  "paid"  in  red  jnk  figures  with  the 
same  number  as  that  of  the  payment,  which  should  be  in  consecutive 
order  on  each  account.     Do  not  rule  off  any  accounts.     The  unchecked 
items  will  then  equal  the  balance.     If  the  settlements  are  made  for 
the  items  marked  "A"  only,  confusion  will  be  avoided  as  often  happens 
when  bills  are  paid  before  being  posted  or  approved. 

Each  account  in  the  auxiliary  ledgers  must  have  its  balance  brought 
down  and  ruled  off  each  fiscal  period.  If  a  payment  for  bills  is  included 
in  both  this  balance  and  in  the  postings  made  after  the  ruling,  use  the 
settlement  number  by  affixing  it  to  the  items  paid  which  are  posted 
before  and  after  the  ruling.  When  all  the  items  in  the  balance  brought 
down  are  paid,  there  will  be  no  items  left  unchecked  behind  the  ruling. 

7.  Keep  all  billing  to  customers  up  to  date  by  absorbing  cost  as 
soon  as  possible      This  can  be  done  by  having  all  work  reports  turned 
in  by  the  foremen  daily,  and  such  data  priced  and  extended.     The 
detail  cost  could  then  be  accumulated  on  a  working  sheet  daily  until 
the  billing  date,  at  which  time  it  is  footed,  verified,  profit  added,  then 
typed  on  bills  in  sets  of  three. 

8.  All  work  other  than  that  of  contracting  is  classed  as  jobbing. 
Every  job  should  be  covered  by  an  order  whose  number  must  be  con- 
secutive and  of  a  range  that  will  not  conflict  with  those  given  to  the 
contract  work.     It  would  be  safe  to  start  the  job  with  order  number 
5000;  this  would  leave  4999  numbers  to  provide  for  recording  the  con- 
tracts.    As  soon  as  a  job  order  is  taken,  open  an  account  for  it  in  the 
Jobbing  Ledger,  and  file  it  in  the  order  of  its  number,  then  make  a 
folder  for  the  same  number  and  file  the  order.  '  By  doing  this  at  once, 
the  ledger  account  is  ready  to  receive  the  cost  and  income  charges 
an/i  credits,  and  the  folder  is  prepared  to  receive  the  supporting  data. 


CHAPTER  VIII 


GENERAL  LEDGER  ACCOUNTS 

Schedule  of  Accounts. — Before  taking  up  the  financial 
statements  and  to  complete  the  discussion  of  the  financial 
bookkeeping,  a  schedule  of  the  General  Ledger  Accounts  is 
presented  below  followed  by  a  detailed  description  of  the 
debits  and  credits  required  in  each  case  and  of  the  nature  of 
the  account  balance.  Many  detail  matters  relating  to  the 
inventories,  suspense  accounts  and  the  reserves  for  deprecia- 
tion are  not  discussed  at  length  in  this  work  because  their 
treatment  in  accounting  for  contractors  follows  the  standard 
practice.  Therefore  the  method  of  their  debit  and  credit  is 
included  in  this  review  of  double-entry  procedure. 

The  accounts  listed  below  are  numbered  to  serve  as  an  index 
reference  to  the  explanatory  matter  to  follow. 


Assets  Accounts 

Acct.  No. 

1.  Cash  in  Bank 

2.  Accounts  Receivable  "Con- 

trol" 

3.  Notes  Receivable 

4.  Stocks  and  Bonds 

5.  Mortgages  Receivable 

6.  Inventory,  Store  Room 

7.  Inventory,  Small  Tools 

8.  Inventory,     Furniture    and 

Fixtures 

9.  Plant  Equipment 

10.  Treasury  Stock 

11.  Suspense 

12.  Payroll  and  Expense 

13.  Accrued    Interest    "Receiv- 

able" 

14.  Advances  "Control" 


Acct. 
15. 
16. 
17. 

18. 
19. 


20. 
21. 
22. 
23. 

24. 
25. 

26. 


Cost  Accounts 
No. 

Accrued  Contract  Cost 
Accrued  Jobbing  Cost 
General  Expense 

Contingent  Capital  Accounts 
Unissued  Capital  Stock 
Subscriptions     to      Capital 
Stock 

Liability  Accounts 
Accounts  Payable  "Control" 
Notes  Payable 
Bank  Loans  Payable 
Notes     Receivable     Dis- 
counted 

Dividends  Payable 
Accrued  Taxes  "Payable" 
Accrued  Interest  "Payable"' 


103 


104  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Acct.  No.  Acct.  No. 

27.  Reserve  for  Working  Capital  Imame  Accounts 

28.  Reserve  for  Bad  Debts 

29.  Reserve     for     Depreciation        31-  Earned  Contract  Sales 

"Plant"  32.  Jobbing  Sales 

30.  Reserve    for    Depreciation,        34-  Trading  Account 

Furniture    and    Fixtures,        35-   Profit  and  Loss 

•  Tools  ,  Net  Worth  Accounts 

33.   Unearned     Contract    Sales, 

Negative  to  Accounts  Re-        36.  Capital  Stock  Authorized 
ceivable  37.   Surplus  Account 

GENERAL  LEDGER  ACCOUNTS— CONTRACTING  BUSINESS 
Debits : 

1.  CASH  IN  BANK  (CASH  ACCOUNT) 

Debit 

With  total  net  receipts  as  shown  at  the  end  of  the  month  in 
Cash  Record. 

Credit 

With  total  checks  drawn  as  shown  at  the  end  of  the  month  in 
Cash  Record. 

Balance 

As  shown  plus  any  deposit  of  the  following  month,  and  the 
checks  outstanding  should  reconcile  with  the  bank  balance 
as  shown  by  the  pass  book  at  the  end  of  the  month. 

2.  ACCOUNTS  RECEIVABLE  "CONTROL  ACCOUNT" 

Debit 
With  total  bills  to  customers  and  price  agreed  on  lump  sum 

contract,  credit  Contract  Sales. 
Total  bills  to  customers  and  credit  Jobbing  Sales. 
Total  bills  to  persons  other  than  above. 
Cash  Paid  credit  balances  and  post  credit  in  red. 

Credit 
With  total  credit  bills  to  customers  for  returns  and  allowances 

on  above  and  post  debit  in  red. 
Total  cash  collected. 
Total  cash  collected  returned  (in  red). 
Total  Notes  Receivable  for  notes  taken. 
Total  General  Expense,  discount  allowed. 
Total  suspense,  any  bills  doubtful  of  collection. 


GENERAL  LEDGER  ACCOUNTS  105 

Balance 

As  shown,  minus  the  amount  of  Contract  Sales  Unearned  will 
be  the  total  collectible  accounts  to  date. 

3.  NOTES  RECEIVABLE  ACCOUNT 

Debit 

With  Accounts  Receivable  "Notes  taken." 
Notes  Receivable  "Notes  renewed." 
Advances  personal  loans  on  notes. 

Credit 

With  Cash  "Any  paid." 
Notes  Receivable  "Notes  renewed." 
Notes  Receivable  "Discounted  when  paid  by  maker." 
Suspense  Account  for  any  protested. 

Balance 

As  shown  minus  the  total  of  notes  discounted  and  unpaid 
will  be  the  total  notes  on  hand  not  due. 

4.  STOCKS  AND  BONDS  OF  OTHER  COMPANIES 

Debit 

With  Stocks  and  bonds  purchased  and  credit  Accounts  Pay- 
able. 
Stocks    and    bonds    in    exchange    and    credit    Account 

affected. 
Revaluation  to  market  price,  credit  Profit  and  Loss. 

Credit 

With  Accounts  Receivable  for  any  sale  of  above. 
Profit  and  Loss  revaluation  to  market  price. 
Account  affected,  any  given  in  exchange. 

Balance 

As  shown  will  be  the  market  value  of  Stocks  and  Bonds  on 
hand. 

5.  MORTGAGES  RECEIVABLE  ACCOUNT 

Debit 
With  Mortgages  purchased,  and  credit  Accounts  Payable. 

Mortgages   acquired   by   transfer,   and   credit   account 

affected. 
Mortgages  renewed. 


106   PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Credit 

With  Accounts  Receivable  for  any  of  above  sold. 
Account  affected  for  parted  with  by  transfer. 
Mortgages  renewed. 

Balance 
As  shown  is  the  value  of  Mortgages  held. 

6.  INVENTORY  STORE  ROOM  ACCOUNT 

Debit 
With  Vendor's    invoices    for    material    and    supplies,    credit 

Accounts  Payable. 

Contract  cost  returns  heretofore  credited  to  this  account. 
Jobbing  cost  returns  heretofore  credited  to  this  account. 
Inventory  end  of  period  against  beginning. 

Credit 
With  Accounts  Payable — vendors'  credit  memos,  returns  and 

allowances. 

Contract  cost,  Store  Room  Orders. 
Jobbing  cost,  Store  Room  Orders. 
General  Expense,  Store  Room  Orders. 
Inventory  end  of  period  against  beginning. 

Balance 

As  shown  will  be  the  cost  value  of  materials  and  supplies  on 
hand. 

7.  INVENTORY  TOOL  ACCOUNT 

Debit 
With  Vendors'  invoices,  and  credit  Accounts  Payable. 

Payroll   Account,   labor   and   expense   making   and  re- 
pairing. 

Credit 

With  Accounts  Receivable  for  any  sale  of  above. 
Contract  cost  for  any  transfer  of  above. 
Jobbing  cost  for  any  transfer  of  above. 

Balance 

As  shown,  minus  the  Reserve  for  Depreciation  deducted  on 
the  Balance  Sheet,  is  the  present  estimated  book  value. 

8.  FURNITURE  AND  FIXTURES 

Debit 
With  Vendors'  invoices,  credit  Accounts  Payable. 


GENERAL  LEDGER  ACCOUNTS  107 

Credit 
With  Accounts  Receivable,  any  sale  of  above. 

Balance 

As  shown,  minus  the  Reserve  for  Depreciation  deducted  on  the 
Balance  Sheet,  is  the  present  estimated  book  value. 

9.  PLANT  EQUIPMENT  ACCOUNT 

Debit 
With  Vendors'  invoices,  credit  Accounts  Payable. 

Credit 

With  Accounts  Receivable  for  any  sale  of  above,  or  parts  dis- 
carded at  cost,  debit  Reserve  Account. 

Balance 

As  shown,  minus  the  Reserve  for  Depreciation  deducted  on  the 
Balance  Sheet,  is  the  present  estimated  book  value. 

10.  TREASURY  STOCK  ACCOUNT 

Debit 

With  Re-acquired  Stock,  and  credit  the  account  affected. 
Premium  on  par,  and  credit  the  account  affected. 

Credit 
With  Accounts  Receivable,  any  sale  of  above. 

Discount  allowed,  and  debit  the  account  affected. 

Balance 
As  shown  will  be  the  book  value  of  stock  on  hand. 

11.  SUSPENSE  ACCOUNT 

Debit 

With  Debts  that  are  doubtful,  and  credit  Accounts  Receivable. 
Notes  protested,  and  credit  Notes  Receivable. 

Credit 
With  Cash  for  any  of  above  paid. 

Reserve  for  Bad  Debts  for  any  deemed  worthless. 

Balance 
As  shown  will  be  the  total  doubtful  accounts. 

12.  PAYROLL  AND  EXPENSE 

Debit 
With  Paymaster  check,  and  credit  Cash. 

Other  un-assigned  expenses,  and  credit  Sundry  Advances. 


108  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Credit 

With  Contract  Cost  cleared  by  journal  entry. 
Jobbing  Cost  cleared  by  journal  entry. 
General  Expense  cleared  by  journal  entry. 

Balance 
As  shown  is  the  Accrued  Payroll  (not  due). 

13.  ACCRUED  INTEREST  RECEIVABLE  ACCOUNT 

Debit 
With  Interest  earned,  and  credit  General  Expense. 

Credit 
With  Accounts  Receivable  when  due. 

Balance 

As  shown  will  be  the  interest  Accrued  but  not  due. 
The  accounts  should  be  set  up  as  classified,  viz. : 
Mortgage  Interest 
Interest  (Dividends  on  Stock) 
Interest  on  Bonds 
Interest  on  Notes,  etc. 

14.  ADVANCES  "CONTROL  ACCOUNT" 

Debit 

With  Traveling  checks,  credit  Cash. 
Foremen's  Fund,  credit  Cash. 
Imprest  Fund,  credit  Cash. 
Insurance,  credit  Accounts  Payable. 
Discount,  credit  Bank  Loans  on  Notes. 
Unfinished    Contract    Cost,    credit    Accounts    Payable 

Sub-contractors. 

Organization  Expenses,  credit  Accounts  Payable. 
All  other  advances,  credit  account  affected. 
Loans,  personal,  credit  Cash. 

Credit 
With  Cash  returned  on  any  of  above. 

Contract  Cost  for  accountings  made  on  above. 
Jobbing  Cost  for  accounting  made  on  above. 
General  Expense  for  accountings  made  on  above,  and 
accruals. 

Balance 
As  shown  will  be  the  deferred  items  for  the  month. 


GENERAL  LEDGER  ACCOUNTS  109 

It  is  an  innovation  to  keep  the  deferred  charges  in  an  auxiliary  ledger, 
but  the  object  is  to  keep  the  number  of  accounts  operated  in  the  General 
Ledger  down  to  the  minimum,  as  this  last  named  book  is  so  profuse  with 
accounts  as  generally  conducted,  that  they  almost  equal  a  personal 
ledger  in  their  volume. 

This  ledger  has  its  balances  brought  down  each  month  and  made 
into  a  trial  showing  the  balance  of  each  account,  and  each  balance 
as  shown  is  distributed  in  columns  bearing  the  title  of  the  account 
to  be  charged.  The  totals  are  cleared  each  month  by  a  credit  to  each 
account  for  the  portion  accrued,  and  the  account  affected  is  charged 
for  the  total  of  each  classification  to  General  Expense,  which  is  analyzed 
each  month  in  an  auxiliary  record  to  show  its  content.  The  accounts 
not  credited  by  figuring  their  monthly  accrual,  are  cleared  by  return 
cash,  or  accountings  whose  debit  effect  is  direct  to  Contract  Cost, 
Jobbing  and  General  Expense.  This  is  a  very  concentrated  way  of 
handling  deferred  items,  especially  when  they  are  numerous.  The 
writer  feels  sure  if  once  tried  it  would  be  found  efficient  and  condensed. 
Its  purpose  is  fully  realized  when  segregated  under  its  various  titles 
on  the  semi-annual  Balance  Sheet  and  Profit  and  Loss  Statement. 

15.  ACCRUED  CONTRACT  COST  ACCOUNT 

Debit 
With  Labor  and   Expense,   as  cleared   by  credit  to  Payroll 

Account. 

Materials,  credit  Accounts  Payable. 
Materials,  transfer  credit  Jobbing  Cost. 
Materials,  credit  Store  Room. 
Expense,  credit  Advances  and  Accounts  Payable. 
Inventory. 

Credit 
With  Accounts  Payable  Vendors,  credit  memos. 

Store  Room,  charge  back  for  return  material. 
Accounts  Receivable,  bills  for  salvage. 
Material  transfer,  debit  Jobbing  Cost. 
Inventory. 

Balance 

As  shown  is  Cost  of  Accrued  Contract  Sales  and  closed  into 
the  Trading  Account  at  the  end  of  the  fiscal  period  to  show 
the  Trading  Profit  and  Inventory  of  Unbilled  Costs. 

16.  ACCRUED  JOBBING  COST  ACCOUNT 

Debit 
With  Labor  and  Expense,  as  cleared  by  credit  to  Payroll. 


110  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Account. 

Material,  credit  Accounts  Payable. 

Material,  credit  Store  Room. 

Material  transfer,  credit  Contract  Cost. 

Expenses  transfer,  advances  and  Accounts  Payable. 

Inventory. 

Credit 
With  Accounts  Payable  Vendors  credit  memos. 

Store  Room,  charge  back  for  return  material. 
Material  transfer  to  Contract  Cost. 
Inventory. 

Balance 

As  shown  is  Cost  of  Jobbing  Sales  and  closed  into  Trading 
Account  at  the  end  of  the  fiscal  period  to  show  the  Trading 
Profit  and  Inventory  of  Unbilled  Costs. 

17.  GENERAL  EXPENSE  ACCOUNT 

Debit 

With  every  nature  of  expense  and  its  source  that  cannot  be 
specifically  charged  to  an  individual  Contract  or  Job. 

Credit 

With  every  nature  of  income  other  than  Contract  or  Jobbing 
Sales  (post  in  red). 

Balance 
As  shown  in  the  net  overhead  which  is  closed  into  Profit  and 

Loss  at  the  end  of  the  fiscal  period. 

As  before  stated  the  content  of  this  account  is  analyzed  each  month 
for  the  total  charges  and  credits  distributed  under  their  classification, 
and  it  is  cumulative  for  each  month  to  the  end  of  the  fiscal  period.  It 
is  then  incorporated  in  the  semi-annual  statement  for  the  purpose  of 
observing  the  nature  of  the  expense  incurred,  and  its  net  result  is  pro- 
rated to  the  various  State  costs  as  heretofore  described. 

To  facilitate  its  efficient  distribution  it  should  have  a  symbol  classi- 
fication segregated  to  three  groups,  namely — Engineering  Expense, 
Selling  Expense  and  Administrative  Expense.  Each  group  has  a 
separate  series  of  numbers,  Engineering — E  101  to  199,  Selling  S  201 
to  299,  and  Administrative  A  301  to  399.  This  makes  the  analysis 
more  convenient,  as  it  is  easier  to  distribute  by  numbers  than  it  is  to 
names. 

Every  symbol  to  be  charged  should  be  entered  on  the  invoice  or 
journal  voucher  in  a  conspicuous  manner  so  as  to  make  clear  the  account 
to  be  charged  or  credited.  This  method  of  operating  the  general  cost 


GENERAL  LEDGER  ACCOUNTS  111 

and  income  cuts  down  the  number  of  General  Ledger  accounts  that 
otherwise  would  be  necessary,  and  at  the  same  time  gives  the  owner 
all  the  information  desired  from  the  cumulative  analysis  of  General 
Expense  which  is  an  auxiliary  record. 

18.  UNISSUED  CAPITAL  STOCK 

Debit 
With  Capital  Stock  authorized. 

Accounts  Receivable  shares  forfeited. 

Credit 
With  Subscriptions  for  stock  issued. 

Balance 
As  shown,  will  be  Capital  Stock  Unissued. 

19.  SUBSCRIPTIONS  ACCOUNT 

Debit 
With  Unissued  Capital  Stock  amount  subscribed. 

Credit 
With  Accounts  Receivable  for  value  subscribed. 

Balance 

There  would  be  no  balance  to  this  amount  if  treated  as  above, 
as  it  is  cleared  at  once  by  making  the  value  a  collectible 
Accounts  Receivable.  If  treated  in  the  usual  way  of 
applying  the  payments  direct,  the  balance  would  be  the 
unpaid  subscriptions. 
Credits : 

20.  ACCOUNTS  PAYABLE  "CONTROL  ACCOUNT" 

Debit 
With  Cash  paid  to  vendors. 

Notes  given  to  vendors  and  creditors. 

Store  Room  credit  memos  from  vendors  for  Returns  and 

Allowances. 

General  Expense,  Discounts  taken. 
Contract  Cost  material  returned  to  vendors. 
Jobbing  Cost  material  returned  to  vendors. 

Credit 

With  Contract  Cost,  Vendors,  Invoices. 

Contract  Cost,  Creditors,  Invoices  and  Journal  Entries. 
Jobbing  Cost,  Vendors'  Invoices  and  Journal  Entries. 


112  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Jobbing  Cost,  Creditors'  Invoices  and  Journal  Entries. 
Store  Room,  Vendors'  Invoices. 
Store  Room,  Creditors'  Invoices  and  Journal  Entries. 
General  Expense,  Creditors'  Invoices  and  Journal  Entries. 

Balance 
As  shown  is  the  amount  of  indebtedness  to  creditors. 

21.  NOTES  PAYABLE  ACCOUNT 

Debit 
With  Cash  paid. 

Notes  renewed. 

Credit 

With  Accounts  Payable,  Notes  given  vendors  and  creditors 
notes  renewed. 

Balance 
As  shown  is  the  unpaid  notes  not  due. 

22.  BANK  LOANS  PAYABLE  ACCOUNT  (NOTES  DISCOUNTED) 

Debit 
With  Cash  when  paid. 

Credit 

With  Cash,  net  amount  when  negotiated. 
Advances,  Interest  when  negotiated. 

Balance 
As  shown  is  the  Notes  Unpaid,  Not  Due. 

23.  NOTES  RECEIVABLE  DISCOUNTED  ACCOUNT 

Debit 

With  Notes  Receivable,  when  paid  by  maker 
Cash,  when  recalled  or  protested. 

Credit 
With  Cash,  when  discounted,  net  value. 

General   Expense    Interest   adjustment   to    redemption 
value. 

Balance 

As  shown  is  a  contingent  liability,  and  is  deducted  from  Notes 
Receivable  on  the  semi-annual  Balance  Sheet,  and  foot  note 
made  of  the  amount  deducted. 


GENERAL  LEDGER  ACCOUNTS  113 

24.  DIVIDENDS  PAYABLE  ACCOUNT 

Debit 
With  Cash,  if  paid. 

Unissued  stock,  if  Stock  Dividend  is  declared. 

Credit 
With  Surplus  or  Undivided  Profits. 

Balance 
As  shown  is  the  amount  due  and  unpaid. 

25.  ACCRUED  TAXES  PAYABLE  ACCOUNT 

Debit 
With  Accounts  Payable. 

Credit 
With  General  Expense. 

Balance 
As  shown  is  the  amount  accrued  but  not  due. 

26.  ACCRUED  INTEREST  PAYABLE  ACCOUNT 

Debit 
With  Accounts  Payable. 

Credit 
With  General  Expense. 

Balance 
As  shown  is  the  amount  accrued  but  not  due. 

27.  RESERVE  FOR  DONATED  WORKING  CAPITAL  ACCOUNT 

Debit 
With  Treasury  Stock,  Discount  on  Sale  of  Shares. 

Surplus  Account,  when  closed  by  sale  of  shares. 

Credit 

With  Treasury  Stock  at  par,  when  donated. 
Premium  on  the  sale  of  shares. 

Balance 
As  shown  is  the  unsold  Treasury  Stock  Donated. 

28.  RESERVE  FOR  BAD  DEBTS 

Debit 

With    Customers    bills    deemed    worthless,    Credit    Suspense 
Account. 


114  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Credit 
With  General  Expense,  1  per  cent  on  Sales  for  each  month. 

Balance 
As  shown  is  the  Net  Reserve,  not  absorbed. 

29.  RESERVE  FOR  DEPRECIATION  (PLANT  EQUIPMENT) 

Debit 

With  Plant  Equipment  sales  or  value  discarded,  for  the  per- 
centage the  cost  bears  to  the  reserve  account. 
Plant  Equipment  for  replacement. 

Credit 

With  General  Expense  for  the  amount  set  aside  each  month. 
Balance 

As  shown  will  be  the  amount  to  be  deducted  from  the  cost 
value  of  the  plant  equipment  on  the  semi-annual  State- 
ment. At  the  end  of  each  month  charge  General  Expense 
and  credit  this  account  with  the  wear  and  tear  of  plant 
equipment  used  in  operation.  It  would  simplify  the  opera- 
tion to  take  the  cost  of  the  equipment  and  divide  its  life 
into  months  and  set  up  the  reserve  for  the  monthly  value 
as  determined  over  its  life;  then  if  plant  items  are  discarded 
through  obsolescence,  any  residual  value  recovered  would 
revert  to  Profit  and  Loss,  and  the  reserve  would  equal  the 
cost  of  its  replacement.  By  conforming  to  this  "Straight 
Line"  method  of  treating  fixed  or  permanent  assets,  pro- 
vision is  made  against  any  leakages  which  might  occur  by 
not  absorbing  what  is  theoretically  a  wasting  asset  by  a 
charge  to  expense  when  it  accrues;  this  makes  the  reserve 
equal  the  reduction  value  of  the  asset  charged  to  expense. 
The  gradual  progression  of  this  expense  to  the  time  the 
asset  is  discarded  (if  it  only  lasts  the  time  forecasted)  creates 
a  reserve  equal  to  the  asset  absorbed  and  is  reflected  in  the 
other  assets.  When  replacement  takes  effect,  the  original 
asset  stands  on  the  books  of  account  undisturbed,  and  the 
assets  that  have  been  increased  by  the  amount  reserved,  are 
then  correspondingly  decreased  when  the  reserve  is  con- 
verted into  the  original  asset  of  Plant.  A  solution  by  four 
journal  entries  will  make  this  clear,  as  follows: 

Plant  Account $100,000 

To  Invested  Capital $100,000 

Original  Entry. 


GENERAL  LEDGER  ACCOUNTS  115 

Expense 100,000 

To  Reserve  for  Depreciation 100,000 

5  per  cent  annual  charge,  which  is 
a  reserve  of  profits  to  meet  the 
value  of  the  Plant  treated  as  a  20- 
year  advance  cost  to  be  absorbed 
$5,000  per  annum. 

Plant  Account $100,000 

To  Cash  or  Other  Assets $100,000 

Cost  of  replacement. 

Reserve  for  Depreciation 100,000 

To  Plant 100,000 

Transfer  from  latter  to  former 
account  for  the  value  of  discarded 
plant. 

No  part  of  this  reserve  should  be  set  up  as  a  current  profit 
for  such  an  item  as  rent,  etc.,  as  any  profit  accruing  to  the 
owner  from  depreciation  charges  is  reflected  in  the  sales 
which  cover  the  cost  charged  from  the  reserve  entry.  The 
problem  in  this  account  is  the  amount  to  be  charged  against 
it  for  any  part  sold  or  discarded,  so  the  following  solution  is 
submitted : 

A  has  Plant  Equipment  booked  at  $10,000  cost,  with  deprecia- 
tion to  date  of  $5,000.  He  sells  part  of  this  equipment 
for  $600,  which  originally  cost  him  $1,000.  What  entries 
should  be  made  to  show  these  facts  in  the  books  of  account? 

The  ledger  accounts  before  entry  of  the  above  would  be: 

Plant  Equipment  Reserve  for  Depreciation 

Cost,  $10,000  Depreciation,  $5,000 

The  following  entry  should  be  made : 

Debit :  Accounts  Receivable $600 

Reserve  for  Depreciation $500 

Credit:  Plant  Equipment $1,000 

Profit  and  Loss $    100 

Since  Ho  of  the  original  cost  value  was  sold,  a  proportionate 
amount  of  the  reserve  must  be  written  back  (10  per  cent). 
When  the  above  entry  has  been  posted,  the  result  on  the 
above  two  accounts  will  be: 

Plant  Equipment  Reserve  for  Depreciation 

Cost,  $10,000  Sale,  $500 

Sale,  $1,000         Depreciation,  $5,000 


116  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

The  Plant  Equipment  account  now  has  a  balance  of  $9,000, 
and  the  Reserve  account  a  balance  of  $4,500.  The  propor- 
tion between  the  two  amounts  is  the  same  as  before  the 
entries  were  made. 

If  the  Plant  features  a  number  of  big  machines,  a  Plant  Ledger 
should  be  operated  under  a  Control  Account,  and  each 
machine  should  be  represented  by  a  sub-account.  The  life 
of  each  machine  is  estimated  and  the  amount  of  reserve  is 
credited  at  the  end  of  each  month.  Plant  Account  is  credited 
with  P.  &  L.  for  the  difference  between  the  original  cost  and 
the  selling  price  of  any  part  sold,  plus  the  proportion  of  the 
reserve  applicable  to  that  part,  and  the  selling  price,  and 
when  the  reserve  is  charged  and  the  Plant  account  credited 
with  the  amount  applicable  to  any  particular  part  sold, 
the  actual  cost  value  of  the  depleted  plant  is  shown.  Addi- 
tions in  the  nature  of  betterments  are  of  course  added  to  the 
value,  and  depreciated  periodically  from  their  inception. 
These  accounts  are  best  operated  by  entering  them  on  a 
provisional  record:  which  has  debit  columns  for  the  cost, 
and  monthly  expiration  credit  columns  for  depreciation  and 
other  adjustments;  the  difference  between  the  two  showing 
the  present  book  value  of  the  asset  which  is  the  control  on 
the  general  ledger  for  Plant  items  when  reduced  by  the 
amount  of  the  reserve  account. 

30.  RESERVE  FOR  DEPRECIATION  FURNITURE  AND  FIXTURES  ACCOUNT 

AND 
RESERVE  FOR  DEPRECIATION  TOOLS  ACCOUNT 

These  accounts  are  usually  adjusted  by  a  less  exact  charge 
than  that  of  a  permanent  asset  such  as  Plant  Equipment; 
in  most  cases  an  approximate  amount,  set  up  each  period 
will  do  in  reducing  this  asset  to  a  present  book  value. 

31.  EARNED  CONTRACT  SALES  ACCOUNT 

Debit 

With  transfer  to  Trading  Account  at  the  end  of  the  fiscal 

period. 

Unearned  Contract  Sales  for  the  cost  plus  10  per  cent  on 
Set  Price  Contracts  at  completion  in  excess  of  the 
Sales  heretofore  credited  to  this  account. 


GENERAL  LEDGER  ACCOUNTS  117 

Credit 

With  Unearned  Contract  Sales  as  per  the  accrual  shown  on 
Cumulative  Contract  Ledger  at  the  end  of  each 
month. 

Unearned  Contract  Sales  with  the  excess  of  set  price 
contracts  above  the  cost  plus  10  per  cent  at  comple- 
tion, heretofore  applied  to  the  credit  of  this  account. 

Balance 
Nil. 

32.  JOBBING  SALES  ACCOUNT 

Debit 

With  the  Trading  Account  at  the  end  of  the  fiscal  period. 

Accounts  Receivable  with  credit  bills  to  customers,  as 

shown  on  the  Figure  Analysis  Book. 
Summary  of  Sales  each  month  (Post  credit  in  red). 

Credit 

With  Accounts  Receivable  for  all  bills  on  account  of  jobbing 
as  shown  on  the  Figure  Analysis  Book  Summary  of  Sales 
each  month. 

Balance 
Nil. 

33.  UNEARNED  CONTRACT  SALES  ACCOUNT 

Debit 

With  the  Cost  plus  10  per  cent  on  all  set  price  contracts  and 
credit  Earned  Contract  Sales  for  this  amount  each 
month. 

Any  remaining  balance  of  the  sales  price  at  completion 
of  a  set  price  contract  which  has  not  been  absorbed 
by  the  cost  plus  10  per  cent,  and  credit  Earned  Con- 
tract Sales  if  complete. 

The  total  of  all  the  other  classes  of  sales  credited  each 
month  on  the  Cumulative  Contract  Ledger,  and  credit 
Earned  Contract  Sales. 

Credit 

With  Accounts  Receivable  for  the  total  bills  rendered  to 
customers  during  the  month  as  shown  on  the  Figure 
Analysis  Book  Summary  of  Sales,  which  includes 
memos  of  set  price  contracts. 


118  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

The  excess  of  cost,  plus  10  per  cent  on  the  set  Price 
Contracts  heretofore  applied  to  the  debit  of  this 
account,  and  debit  Earned  Contract  Sales  if  complete. 

Balance 
As  shown  will  be  the  un-finished  value  of  set  price  contracts. 

34.  TRADING  ACCOUNT 

Debit 

With  Accrued  Contract  Cost,  Credit  Account  15. 
Accrued  Jobbing  Cost,  Credit  Account  16. 
Profit  and  Loss,  Credit  Account  35. 

Credit 

With  Earned  Contract  Sales,  Debit  Account  31. 
Jobbing  Sales,  Debit  Account  32. 

35.  PROFIT  AND  Loss  ADJUSTMENT  ACCOUNT 

Debit 

With  General  Expenses. 
Trading  Loss 
Surplus  Account. 

Credit 

With  Miscellaneous  Income. 
Trading  Profit. 
Surplus. 

36.  CAPITAL  STOCK  ACCOUNT 

Debit 
With  any  reduction  of  Capital  Stock  credit  Un-issued  Stock. 

Credit 
With  Un-issued  Stock  for  total  authorized. 

Balance 

As  shown,  is  reduced  on  the  semi-annual  Balance  Sheet  by  the 
Un-issued  Stock  which  shows  the  Capital  Stock  Account 
amount  issued  and  outstanding. 

37.  SURPLUS  ACCOUNT 

Debit 
With  Profit  and  Loss  for  the  period. 

Any  adjustments  of  a  prior  period. 
Dividends  Payable. 


GENERAL  LEDGER  ACCOUNTS  119 

Credit 
With  Profit  and  Loss  for  the  period. 

Any  adjustments  of  a  prior  period. 

Balance 

As  shown  is  either  an  accretion  to,  or  an  impairment  of,  capital 
invested. 

THE  REPORT 

This  should  be  either  semi-annual  or  annual,  and   comprises  the 
following  exhibits  on  the  basis  of  a  calendar  year: 

Exhibit  A — Comparative  Balance  Sheet 

Showing,  two  last  periods  of  accounting,  and  their  Increases  and 
Decreases.  See  Form  13,  pages  138  and  139. 

Exhibit  B — Condensed  Statement  of  Profit  and  Loss 
Showing,  Income  from  Earned  Contract  Sales. 
Income  from  Jobbing  Sales. 
Less:  Accrued  Contract  Cost. 
Accrued  Jobbing  Cost. 
Dif.:  Gross  Trading  Profit  or  Loss. 
Less:  General  Expense. 
Dif.:  Net  Operating  Profit  or  Loss. 
Plus  or  Minus:  Other  Revenues  and  Expenses. 
Resulting  In:  Net  Profit  or  Loss  for  the  Period. 
See  Form  14,  page  140. 

Exhibit  C — Detail  Statement  of  General  Expense 

And  other  Revenues  and  Expenses.     See  Form  15,  page  141. 

Exhibit  D — State  Analysis 

Showing,  Whole  cost  of  work  performed  in  each  State,  and  the 
profit  made,  or  loss  sustained  in  each,  the  total  of  both  shows  an 
amount  equal  to  the  Earned  Sales.  See  Form  22,  page  179. 

Exhibit  E — Statement  of  Surplus 

Showing,  The  changes  for  the  period. 

SUPPORTING  SCHEDULES 

1.  Contracts  closed  during  the  period. 

2.  Contracts  unfinished  end  of  the  period  and  Forecast  to  Complete. 

3.  Investments,  Stocks  and  Bonds. 

4.  Notes  Receivable. 

5.  Notes  Receivable  Discounted. 


120  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

6.  Notes  Payable  Vendors. 

7.  Notes  Payable  Bank  Loans. 

8.  Account  Due  from  Customers. 

9.  Accounts  Due  to  Vendors  and  Others. 

10.  Advances  and  their  significance. 

11.  Stockholders,  showing  in  detail  the  number  and  classes  of  shares 

held  by  each. 


CHAPTER  IX 
SUMMARY  OF  SEQUENCE  OF  OPERATION 

In  this  chapter  a  summary  is  presented  for  reference  pur- 
poses of  the  sequence  of  operations  from  the  charges  to  contract 
and  jobbing  work  to  the  preparation  of  the  statements  included 
in  the  Annual  Report. 

Materials  Cost 
Charged  from 

1.  Store  Room  Orders. 

2.  Transfer  Tickets — between  jobs. 

3.  Invoices  from  vendors  direct  on  Purchase  Order. 

4.  Sub-contractor's  requisitions. 

Labor  Costs 

Charged  from 

Weekly  Time  Sheets. 

Direct  Expense  Costs 

Charged  from 

1 .  Weekly  reports  from  foremen. 

2.  Invoices,  other  than  vendors. 

3.  Clearing  of  cash  and  other  advance  charges. 

Overhead  Cost 

1.  Engineering  Expense. 

2.  Selling  Expense. 

3.  Administrative  Expense. 

The  sources  of  which  are:  Payrolls,  invoices,  store  room  orders, 
journal  transfers,  etc. 

Contract  and  Jobbing  Income 

Bills  rendered  to  customers  for 

1.  Materials  as  per  foreman's  report. 

2.  Labor  as  per  foreman's  report. 

3.  Profit  on  above. 

4.  Insurance. 

5.  On  unit  price  basis  for  units  installed. 

121 


122  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Requisitions  made  on  customers  for 

1.  "Cost  in"  to  end  of  month.     Plus  10  per  cent  on  above. 

2.  Percentage  earned  on  amount  disbursed  when  doing  work 

on  a  cost  plus  basis,  and  financed  by  the  owner. 

3.  Fixed  fee  basis.     Proportion  of  fee  due  for  work  performed. 

Store  Room  Ledger 

Charge  with 

1.  Invoices  for  materials  purchased  from  vendors. 

2.  Invoices  for  supplies  purchased  from  vendors. 

3.  Materials  returned  from  Jobs  on  Transfer  Ticket. 
Credit  with 

1.  Materials  shipped  to  jobs  on  Store  Room  Order. 

2.  Materials  returned  to  vendor  as  per  Debit  Memo's. 

3.  Expense  supplies  issued  on  Store  Room  Order. 

Accounts  Receivable  Ledger 

Charge  with 

1.  Bills  rendered  to  customers. 

2.  Requisitions  to   customers  by  transfer  from  item  3  for 

amount  earned. 

3.  Contract  and  extra  orders  when  other  than  a  billing  con- 

tract "advance  charge." 
Credit  with 

1.  Cash  collected. 

2.  Any  credit  memo's  to  negative  charges  (post  debit  in  red 

figures). 

Accounts  Payable  Ledger 
Credit  with 

1.  All  invoices  from  vendors  or  other  creditors. 
Charge  with 

1.  Cash  paid. 

2.  Any  debit  memo's  to  negative  credits  (post  credit  in  red 

figures). 

Cumulative  Contract  Ledger 

Charge  with 

1.  Total  cost  of  material  each  month  as  per  Figure  Analysis 

Book. 

2.  Total  cost  of  labor  each  month  as  per  Figure  Analysis 

Book. 

3.  Total  cost  of  expense  each  month  as  per  Figure  Analysis 

Book. 


SUMMARY  OF  SEQUENCE  OF  OPERATION  123 

Credit  with 

1.  Total  amount  billed  each   month  us  per  Figure    Analysis 

Hook. 

2.  Requisition  for  lump  sum,  fixed  fee  or  jxjrcentage  earned, 

transfer  from  item  3. 

3.  Contract  and  extras  "lump  sum"  each  month  as  per  Figure 

Analysis  Book. 
Jobbing  Ledger 
Charge  with 

1.  Each  item  of  material  cost  as  per  F.A.B. 

2.  Each  item  of  labor  cost  as  per  F.A.B. 

3.  Each  item  of  direct  expense  as  per  F.A.B. 
Credit  with 

1.  Each  bill  rendered  to  customer  as  per  F.A.B. 

2.  Debit  for  any  allowance  (post  credit  in  red  figures). 

General  Expense  Analysis  Record. 

Charge  with 

Monthly  total  of  each  classification  of  expense  as  distributed 

in  the  Figure  Analysis  Book.     Enter  credits  in  red  figures. 

Enter  for  total  debits  and  credits  to  separate  account  for 

reverse  control. 
Record  of  Advances 
Charge  with 

1.  Cash  advanced  for  traveling. 

2.  Advance  insurance  premiums. 

3.  Foremen's  funds. 

4.  Bank  discount  in  advance,  etc. 
Credit  with 

1.  Monthly  accruals. 

2.  Accountings  made. 

3.  Cash  returned,  etc. 
Figure  Analysis  Book 

Charge  and  credit  in  the  Contract,  Jobbing,  Store  Room,  Pay 
Roll,  General  Expense  sections  with: 

1.  The  store  room  orders  as  analyzed. 

2.  The  transfer  tickets  as  analyzed. 

3.  The  invoices  from  vendors  and  other  creditors  and  debit 

memo's. 

4.  The  pay  roll  and  expense  as  per  weekly  pay  roll  and  .reim- 

bursement to  foreman. 

5.  The  contract  and  extra  orders  or  deductions  allowed. 

6.  The  bills  to  customers  and  credit  memo's. 


124  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


Cumulative  Classified  Unit  Cost  Record 

Charged  with  Estimated  units  of  material  and  labor  and  expense  cost. 
Credit  with  Actual  units  of  material  and  labor  and  expense  cost, 

taken  from  invoices,  store  room  orders  and  weekly  pay  roll 

(inventories  in  red  figures). 

This  record  is  kept  in  the  engineering  or  estimating  department  and 
has  no  relation  to  the  financial  records  other  than  serving  as  a  means  of 
comparing  actual  with  estimated  costs.  Its  form  and  content,  and 
the  method  of  its  operation  will  be  described  in  Chap.  XI. 

Cash  Record,  Columns  ruled  for  purpose  of  control 
Debit  side 

1.  Net  receipts. 

2.  Interest  and  discount. 

Totals  Credit — Postings  from  debit  side. 

Equal    1.  General  Ledger  Accounts. 

2.  Advances  Ledger  accounts. 

3.  Accts.  Payable  Accounts. 

4.  Accts.  Receivable  Accounts. 

Credit  side 

1.  Net  disbursements. 

2.  Interest  and  discount. 

Debit — Postings  from  credit  side. 
Totals    1.  General  Ledger  accounts. 
Equal    2.  Advances  Ledger  accounts. 

3.  Pay  Roll  and  Expenses  accounts. 

4.  Accounts  Payable  Ledger  accounts. 

5.  Accounts  Receivable  Ledger  accounts. 

General  Journal 
Debit  with 

1.  Cash  control  amounts,  end  of  end  month. 
Totals    2.  Figure  Analysis  Control  amounts,  end  of  each  month. 
Equal    3.  Adjustments  to  Profit  and  Loss  each  fiscal  period. 

4.  General  Ledger  Items. 

Credit  with 

1.  Cash  control  amounts,  end  of  each  month. 

2.  Figure  Analysis  control  amounts,  end  of  each  month. 

3.  Adjustments  to  Profit  and  Loss,  end  of  fiscal  period. 

4.  General  Ledger  Items. 


SUMMARY  OF  SEQUENCE  OF  OPERATION  125 

General  Ledger 
Charge  with 

Control  total  of  each  auxiliary  column  of  General  Journal. 
Details  assigned  to  the  General  Ledger  column  of   General 

Journal. 

Details  assigned  to  the  General  Ledger  column  of  Cash  Record 
"Credit." 

Credit  with 

Control  total  of  each  auxiliary  column  of  General  Journal. 
Details  assigned  to  the  General  Ledger  column  of  General 

Journal. 

Details  assigned  to  the  General  Ledger  column  of  Cash  Record 
"Debit." 

Purchase  Orders  are  issued  for 

1.  Materials  direct  to  jobs. 

2.  Materials  direct  to  Store  Room. 

3.  Supplies,  furniture  and  fixtures,  and  plant  items. 

Order  according  to  the  quantity  needed  but  not  on  hand,  so  as  to 
meet  the  requirements  of  the  contract  or  job  taken  and  the  general 
expense  supplies  necessary.  This  will  keep  inventories  at  a  minimum. 

Invoices 

Are  charged  to  Contract,  Job,  Store  Room  or  General  Expense,  etc. 
Are  credited  to  Accounts  Payable. 

Payroll  and  Expenses 

Are  charged  from  Cash  Record. 

Are  credited  by  a  clearing  entry  each  month  made  from  the  Figure 
Analysis  Book. 

Payroll  and  Expense  (foreign) 

The  time  sheets  and  expense  reports  sent  in  during  the  week  by 
foremen  who  are  funded,  and  on  other  than  local  work,  are  paid 
by  drawing  a  check  to  the  order  of  the  foreman,  thereby 
reimbursing  him.  This  check  is  charged  to  payroll  and  expense, 
and  the  cost  is  assigned  to  the  Figure  Analysis  Book  as  desig- 
nated by  the  symbol  on  the  time  sheets  and  expense  reports. 
These  items  comprise  the  clearing  entry  at  the  end  of  each 
month  for  charges  to  payroll  and  expense  made  direct  from  the 
cash  record. 


126  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Weekly  Payroll  and  Expense  (local) 

All  time  tickets  and  expense  reports  are  turned  in  to  the  account- 
ing  department,  usually  on  Thursday  of  each  week.  They  are 
signed  by  the  foreman  covering  the  work  and  must  come  in 
extended  for  the  amount  due  each  man,  and  the  total  for  all 
men.  The  routine  of  their  handling  is  as  follows: 

1.  Assort  them  in  the  order  of  contract,  job  and  general  expense 

numbers,  the  lowest  number  on  top. 

2.  Verify  extensions  and  footings. 

3.  Enter  the  total  of  each  on  the  payroll  and  expense  form  in  three 

groups,  as  follows:  Contracts — (labor  and  expense),  Jobbing — 
(labor  and  expense),  and  General — (labor  and  expense)  and 
prefix  the  numbers  of  each  account  to  be  charged. 

4.  Make  payroll  envelopes  from  the  time  sheets  and  expense  reports, 

excluding  those  that  have  been  paid  during  the  week  for  any 
lay  off,  but  included  thereon. 

5.  A  tape  is  made  by  the  adding  machine  listing  all  amounts  shown 

on  the  envelopes,  and  their  total  amount,  plus  the  total  of 
those  paid  off  but  included  on  the  time  sheets,  should  equal 
the  total  of  the  summary  on  the  payroll  and  expense  form. 
Then  make  a  check  to  the  order  of  the  paymaster  for  the 
full  amount  and  draw  the  cash  according  to  the  denominations 
required,  which  can  be  obtained  from  the  tape. 

6.  Fill  the  envelopes,  and  the  cash  left  over  should  equal  the  ones 

paid  by  the  lay  off.  As  these  payments  were  made  by  the 
cashier  from  his  imprest  fund,  the  surplus  cash  is  used  to 
reimburse  him  for  the  advance  expenditure. 

7.  From  the  payroll  labor  and  expense  form  each  week,  enter  the 

details  on  the  Figure  Analysis  Book  to  each  contract  and 
general  expense  according  to  the  number  prefixed  to  each 
item.  The  total  labor  and  expense  for  jobbing  work  is 
entered  as  a  control  only,  as  the  postings  to  the  jobbing 
ledger  are  made  direct  from  the  payroll  form,  which  details 
each  job  cost  of  labor  and  expense. 

Daily  Bank  Balance 

Make  a  statement  of  this  every  morning  according  to  its  condition 
ending  the  previous  day. 

Cash  Receipts 

Verify,  enter  and  post  each  day. 


SUMMARY  OF  SEQUENCE  OF  OPERATION  127 

Cash  Disbursements 

Verify,  enter  and  post  each  day.  All  chocks  should  be  typewritten 
with  a  carbon  copy,  showing  check  number,  bank  letter  symbol, 
and  detail  of  settlement. 

Sales 

Assort,  verify,  enter  on  Figure  Analysis  Book  and  post  all  bills  to 
customers  and  file  them  daily. 

Invoices  "Original" 

Assort,  verify,  enter  in  Figure  Analysis  Book,  post  and  file  all 
invoices  from  vendors  and  others  daily. 

Invoices  ' '  Duplicate ' ' 

Check  against  purchase  order  and  receiving  ticket  and  if  com- 
plete, attach  the  three  and  assort  in  alphabetical  order.  Then 
check  against  corresponding  item  in  Accounts  Payable  ledger 
posted  from  the  original  invoice.  If  found  correct  mark  the 
item  on  the  ledger  A,  to  show  it  is  approved  and  ready  for  pay- 
ment, then  file  alphabetically. 

Store  Room  Order  and  Transfer  Tickets 

1.  Assort  according  to  contract,  job  and  General  Expense  number. 

2.  Put  on  filing  numbers  with  machine  which  numbers  should  be  in 

consecutive  order. 

3.  Verify  prices,  extensions  and  footing  of  each  ticket  or  order. 

4.  Analyze  to  contract,  job  or  general  expense  number. 

5.  Make  journal  entry  for  control  and  detail  items. 

6.  Enter  control  in  general  journal  and  detail  in  Figure  Analysis 

Book,  materials  section. 

Sequence  of  Operation  at  End  of  Month 

1.  Balance  Cash  Record  and  bring  balance  forward  to  following 

month. 

2.  Make  general  journal  entry  of  control  of  cash  and  enter  in 

General  Journal,  then  post  to  General  Ledger. 

3.  Foot  Figure  Analysis  Book  and  frame  totals  into  a  General 

Journal  entry,  showing  control  for  Accounts  Payable,  Con- 
tract and  Jobbing  Cost,  and  General  Expense.  Detail 
each  total  monthly  charge  for  contracts,  jobs  and  classifica- 
tions of  General  Expense  according  to  their  number. 

4.  Make  general  journal  entry  to  clear  payroll  and  expense  as 

analyzed  in  Figure  Analysis  Book  and  enter  on  the  General 
Journal.  The  details  for  the  monthly  cost  of  labor  and 


128  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

expense  to  be  charged  to  each  contract,  job  and  classified 
general  expense  as  cleared,  are  posted  direct  from  the  Figure 
Analysis  Book  once  a  month  by  totals. 

5.  Make  general  journal  entry  of  the  footings  on  the    Figure 

Analysis  Book  for  the  control  charge  to  Accounts  Receiv- 
able, and  credit  to  Unearned  Contract  Sales  showing  detail 
total  monthly  credit  or  debit  to  each  contract,  job,  general 
expense  or  other  income. 

6.  Make  monthly  profit  entry  on  Cumulative  Contract  Ledger 

for  addition  of  10  per  cent  over  cost  to  all  Lump  Sum  con- 
tracts, and  make  a  memorandum  entry  to  charge  Unearned 
Contract  Sales  and  credit  Earned  Contract  Sales  for  the 
monthly  cost  plus  10  per  cent  on  each.  Then  abstract 
the  earned  contract  sales  from  each  account  on  the  ledger 
for  the  month  and  frame  the  total  amount  into  a  general 
journal  entry,  charging  Unearned  and  crediting  Earned 
Contract  Sales  in  the  General  Ledger  control  accounts 

7.  Make  a  General  Journal  entry  for  all  charges  to  Jobbing 

Cost  for  the  month  for  materials  entered  on  the  Figure 
Analysis  Book,  the  totals  of  which  will  give  the  control 
figures  for  Accrued  Jobbing  Cost,  Accounts  Payable  and 
Store  Room.  As  the  details  are  posted  direct  to  the  Job- 
bing Ledger,  Store  Room  Ledger  and  Accounts  Payable, 
all  that  is  needed  is  the  control  figures,  which  are  entered  in 
the  General  Journal. 

8.  Make  a  General  Journal  entry  for  the  total  jobbing  bills 

entered  on  the  Figure  Analysis  Book,  the  details  of  which 
are  posted  direct  from  this  last  named  book  to  Accounts 
Receivable  and  Jobbing  Ledger.  This  will  give  the  control 
figures  to  enter  in  the  General  Journal  for  Accounts  Receiv- 
able and  Jobbing  Sales. 

9.  Make  a  General  Journal  entry  charging  General  Expense  and 

crediting  Accounts  Payable,  Store  Room,  etc.,  for  control. 
The  details  forming  this  control  must  be  tabulated  in  the 
journal  entry  according  to  the  account  symbol  number 
classification  as  entered  on  the  Figure  Analysis  Book. 
Then  these  items  are  posted  each  month  to  the  General 
Expense  Analysis  Record  in  which  the  accounts  are  arranged 
in  consecutive  order  of  symbol  number  classification. 
10.  When  all  the  journal  entries  are  made  in  the  General  Journal, 
foot  the  sections  and  the  debit  and  credit  columns  must 
equal.  This  will  result  in  the  absolute  control  of  all  the 


SUMMARY  OF  SEQUENCE  OF  OPERATION  129 

items  posted  to  the  General  Ledger,  as  every  entry  to  this 
last  named  book  is  governed  by  either  a  direct  or  control 
entry  incorporated  in  the  General  Journal. 

11.  Foot  Receivable  and  Payable  Ledgers  and  take  off  the  trial 
balance  of  each  in  figures  only.  Omit  title  of  accounts 
as  the  schedules  of  names  are  required  at  fiscal  periods  only. 
The  monthly  trial  is  for  the  purpose  of  proving  the  entries 
by  reconciling  them  to  the  control  accounts.  When  tak- 
ing the  trial  balance,  take  total  footings  both  debit  and 
credit  from  each  account  on  the  Ledger,  and  the  difference 
between  these  footings  should  be  the  balance  as  shown  by 
the  control.  By  the  system  of  control  under  which  the 
accounts  are  operated,  if  there  is  an  error  in  the  subsidiary 
books,  it  can  be  determined  which  side  it  is  in,  or  whether 
it  is  in  both  sides,  as  the  charge  and  credit  to  control  accounts 
each  month  must  equal  the  total  details  posted  to  each 
subsidiary  ledger  during  the  month.  If  the  total  footings, 
debit  and  credit  are  taken  as  shown  by  the  trial,  and  from 
these  totals  are  deducted  the  total  debits  and  credits  of 
the  trial  of  the  previous  month,  the  resulting  figure  should 
give  the  control  figures  for  the  month.  If  the  footings  of 
the  control  summaries,  auxiliary  ledger  accounts  and  trial 
balance  are  proved  to  be  correct,  any  difference  must  be  in 
posting  to  the  auxiliary  records  by  either  a  transposition, 
reverse  entry,  omission  or  duplication,  and  the  only  recourse 
is  to  check  the  postings.  The  writer  has  found  that  a  very 
efficient  way  to  check  postings  was  by  abstract,  hence  the 
following  suggestion: 

Lay  out  a  sheet  of  analysis  paper  of  nine  parallel  amount 
columns  numbered  from  1  to  9,  and  assign  each  detail 
amount  included  in  the  control  figures  in  these  columns 
according  to  the  last  figure  expressed  by  the  detail  amount, 
ignoring  ciphers,  for  example: 

DETAIL  AMOUNT  ASSIGNED  TO  COLUMN 

$156.25  5 

156.20  2 

157.40  4 

156.00  6 

122.97  7 

100.00  1  etc. 

The  footings  of  these  nine  columns  should  equal  the  control. 
Such  an  abstract  is  for  the  purpose  of  conveniently  locating 
the  amount  to  be  checked.  The  method  is  quick  and  sure. 


130  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

The  amounts  listed  on  the  abstract  should  only  consist  of 
figures  to  one  more  place  from  the  decimal  point  than  that 
of  the  difference.  If  you  are  looking  for  cents,  list  unit  of 
dollars  and  cents,  if  looking  for  the  dollars,  list  tens  of  dollars 
and  cents,  etc.  After  the  abstract  is  made,  call  off  the 
amounts  posted  to  the  Ledger,  and  check  from  that  book 
to  the  abstract. 

The  writer  has  abstracted  500  monthly  entries  by  this  method, 
and  located  77  posted  79  in  2  hours  for  a  difference  of  2 
cents.  He  has  also  adjusted  errors  by  this  method  in 
hundreds  of  similar  cases,  and  the  time  saved  has  probably 
averaged  75  per  cent  of  that  which  would  have  been  required 
by  checking  from  the  original  entry  to  the  amount  posted, 
by  direct  reference  and  call  between  the  two. 
The  abstract  is  made  from  the  detail  amounts  entered  on  the 
Figure  Analysis  Book,  and  the  posted  amounts  are  called 
back  from  the  ledgers  and  checked  on  the  abstract. 

12.  Total  the  cost  and  income  on  the  Cumulative  Contract  Ledger 

by  adding  the  entries  for  the  current  month  to  those  of  the 

previous   month.     Then   make  a  figure   abstract  of  these 

totals  for  total  cost,  earned  and  unearned  sales,  and  compare 

these  figures  as  follows: 

Total  Cost  abstract  equals  accrued  contract  cost,  Gen.  Led. 

control. 

Earned  Sales  abstract  equals  earned  contract  sales,  Gen. 

Led.  control. 

Unearned   Sales  abstract  equals  unearned  contract  sales, 

Gen.  Led.  control. 

If  they  agree,  all  footings  and  postings  may  be  considered 

correct. 

13.  Foot   Jobbing  Ledger   accounts   for   total   debit   and   credit 

entires  and  take  off  figure  trial.  The  total  debits  must 
equal  the  accrued  jobbing  cost,  and  the  total  credits  the 
jobbing  sales;  both  of  which  are  the  control  accounts  on  the 
General  Ledger. 

14.  Make  monthly  statement  for  all  bills  unpaid,  for  both  con- 

tract and  jobbing  work;  also,  make  requisitions  for  payment 
from  owners  on  all  lump  sum  or  other  class  of  contracts 
not  subject  to  billing.  Then  make  a  collection  list  from 
them,  showing  the  name  of  the  customer,  location,  and 
amount.  The  total  of  the  list  is  usually  estimated  on  a 
"Forecast  of  Collections"  for  the  current  month  at  60 
per  cent. 


SUMMARY  OF  SEQUENCE  OF  OPERATION      .         131 

15.  Foot  the  General  Ledger  and  make  an  abstract  figure  trial 

of  the  footings,  both  debit  and  credit.  The  totals  should 
equal. 

16.  At  the  end  of  each  month  make  a  "Forecast  of  Cash  to  be 

Received  and  Disbursed"  as  follows: 

To  the  balance  in  bank,  add  the  estimated  collections  from 
customers  (conservatively,  60  per  cent  of  the  total  of  the 
collection  list)  plus  bank  loans  discounted.  From  this 
amount,  deduct  bills  to  be  liquidated,  plus  payroll  and 
expenses,  plus  bank  loans  paid.  The  difference  will  be  the 
forecasted  bank  balance  at  the  end  of  the  current  month. 
The  balance  in  the  bank  at  the  beginning  of  the  month  is 
brought  down  under  the  balance  as  forecasted,  showing 
either  an  increase  or  decrease. 

Fiscal  Closing  Entries 

1.  After  making  the  regular  monthly  routine  entries,  arrive  at 

the  inventories  as  follows: 

2.  From  the  Store  Room  Ledger,  take  off  the  balance  on  hand 

at  the  date  of  closing  according  to  units  and  value.  If 
the  listing  of  these  items  involves  many  sheets,  foot  each 
sheet  separately  then  recapitulate  them.  As  the  charges  and 
withdrawals  are  operated  on  a  cost  basis,  this  balance  should 
reconcile  with  the  control  of  Stores  Account  on  the  General 
Ledger.  If  the  difference  is  a  small  one,  the  control  should 
be  adjusted  through  Profit  &  Loss  to  conform  to  the  reca- 
pitulation. On  the  other  hand,  should  it  show  an  excessive 
variation,  the  control  should  be  adjusted  to  the  recapitula- 
tion by  a  suspense  entry,  pending  an  investigation  to  locate 
its  cause.  In  any  event  the  store  room  account  of  control  on 
the  General  Ledger  should  be  the  same  amount  as  the 
inventory  taken  from  the  Store  Room  by  a  physical  check. 

3.  All  data  for  materials,  labor  and  direct  expense  which  has  not 

been  covered  by  a  bill  to  the  customer,  but  has  been  charged 
to  cost,  and  is  for  time  and  material  on  both  contract  and 
jobbing  work,  should  be  assorted  in  two  lots,  one  for  con- 
tracts and  the  other  for  jobbing.  The  items  should  then 
be  analyzed  for  the  material,  labor  and  expense  affecting 
each  contract  and  job,  and  each  contract  and  job  should 
be  posted  in  red  figures  for  their  value,  thereby  reducing  the 
book  cost  to  the  actual  cost  billed.  After  inserting  the  profit 
or  loss  entry,  rule  off  the  account  and  bring  down  the  red 
figures  in  black,  according  to  material,  labor,  direct  expense 


132   PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

and  their  total  amount.  This  will  give  the  unbilled  cost  at 
the  end  of  the  fiscal  period  which  will  be  covered  by  bills  of 
the  new  period.  The  total  of  all  this  cost  is  posted  to  the 
General  Ledger  control  accounts  as  an  "Inventory  of  Con- 
tract and  Jobbing  Costs,  Unbilled,"  which  is  an  asset  of  the 
new  period,  the  credit  of  which  reduces  the  costs  for  con- 
tract and  jobbing  to  the  amounts  which  have  been  covered 
by  bills  to  customers. 

4.  The  control  account  of  Accrued  Contract  Cost  is  equal  to  the 

detail  total  cost  as  shown  on  the  Cumulative  Contract 
Ledger. 

The  control  account  Earned  Contract  Sales  is  equal  to  the 
detail  total  earned  sales  as  shown  on  the  Cumulative  Con- 
tract Ledger. 

The  difference  between  the  cost  and  sales  is  equal  to  the 
difference  between  the  total  detail  Profit  &  Loss  entered 
to  each  account  on  the  Cumulative  Contract  Ledger  at  the 
end  of  the  fiscal  period. 

5.  The  control  account  Accrued  Jobbing  Cost  is  equal  to   the 

detail  total  cost  as  shown  on  the  Jobbing  Ledger.  The 
control  account  Jobbing  Sales  is  equal  to  the  detail  total 
sales  as  shown  on  the  Jobbing  Ledger.  The  difference 
between  the  Costs  and  Sales  is  equal  to  the  difference 
between  the  total  detail  Profit  &  Loss  entered  to  each 
account  on  the  Jobbing  Ledger  at  the  end  of  the  fiscal 
period. 

6.  All  open  contracts  on  the  Cumulative  Contract  Ledger  will 

show  on  the  debit  side  only  unbilled  costs,  and  on  the  credit 
side  unearned  contract  sales.  The  Jobbing  Ledger  will 
only  show  unbilled  costs. 

7.  Make  the  following  journal  entries  to  close  the  above  accounts: 

Trading  Account 

To  Accrued  Contract  Costs 
To  Accrued  Jobbing  Costs 

Transfer  from  latter  accounts  to  former: 
Earned  Contract  Sales 
Jobbing  Sales 

To  Trading  Account 

Transfer  from  former  accounts  to  latter: 
Trading  Account 

To  Profit  &  Loss  Account 


SUMMARY  OF  SEQUENCE  OF  OPERATION  133 

Transfer  of  Gross  Profit  from  former  to  latter  account: 
Profit  &  Loss 

To  General  Expense 

Transfer  from  latter  to  former  account: 
Profit  &  Loss 

To  Other  Expenses 

Transfer  from  latter  to  former  account: 
Other  Income 

To  Profit  &  Loss 

Transfer  from  former  to  latter  account: 
Profit  &  Loss  to  Surplus 

or 
Surplus  to  Profit  &  Loss 

Transfer  of  Profit  or  Loss  to  Surplus : 

The  books  are  now  ready  for  the  preparation  of  the  Annual 
Report  consisting  of: 

Balance  Sheet 

Statement  of  Profit  &  Loss 

and  the  various  supporting  schedules. 


CHAPTER  X 
THE  FINANCIAL  STATEMENTS 

Forecasting  Financial  Expenditures. — In  addition  to  the 
usual  statements  making  up  the  annual  or  semi-annual  report 
and  prepared  at  the  end  of  the  fiscal  period  by  the  accountant 
or  an  outside  firm  of  auditors,  the  contractor  requires  at  more 
frequent  intervals  certain  supplementary  statements  or  reports 
for  the  purpose  of  keeping  a  close  eye  on  his  financial  commit- 
ments. First  in  its  frequency  among  the  minor  statements  is 
a  daily  memo  showing  the  status  of  each  bank  account  (if 
funds  are  kept  in  more  than  one  bank)  at  the  end  of  the 
preceding  day.  This  memo  is  drawn  up  in  the  following 
form  shown  on  page  135. 

At  the  beginning  of  each  month  a  forecast  of  the  financial 
expenditures  and  receipts  is  drawn  up  in  the  manner  shown 
in  Form  12,  page  137. 

At  the  bottom  of  the  forecast  there  is  a  margin  for  the 
volume  of  business  done  the  previous  month  as  follows: 

1.  Accrued  Sales. 

2.  Accrued  Cost. 

3.  General  Expense. 

To  determine  the  amount  of  collections  from  customers  for 
the  month,  it  would  be  conservative  to  take  the  balance  of 
Accounts  Receivable  reduced  by  the  balance  as  shown  by  the 
account  of  Unearned  Contract  Sales,  at  50  or  60  per  cent. 
Notes  renewed  are  taken  at  their  discounted  value. 

Payroll  and  expenses  are  usually  forecasted  on  the  basis  of 
those  of  the  previous  month.  Notes  for  bank  loans  are  of 
course  at  their  redemption  value.  This  completes  the  forecast. 

The  contractor  should  also  get  a  schedule  at  the  end  of  each 
month  of  all  open  contracts,  showing  the  percentage  of  work 

134 


THE  FINANCIAL  STATEMENTS 


135 


DAILY  BANK  BALANCE 

Dale 19. 

__^ Bank  of  Manhattan  Co. Balance 

Balance $40  OOP 

Deposit 10  000 

50000 

Withdrawal.  .  "    31000        $19000 

Corn  Exchange  Bank 

Balance 15000 

Deposit 7  000 

22000 

Withdrawal 6000  16!000 

First  National  Bank 

Balance. 25000 

Deposit 4  000 

~29000 

Withdrawal. .  4  500          24  500J 

Hanover  National  Bank 

Balance 32  OOP 

Deposit 11JOOO 

430001 
Withdrawal 22000;          2l|000| 

Balance 

Deposit 

Withdrawal 

Total  Balance  End  of  Day $80  500 


performed  on  the  basis  of  the  estimated  cost  to  complete.  By 
using  this  percentage  for  the  cost  in  (as  shown  by  the  Cumula- 
tive Contract  Ledger),  as  a  multiplier  of  the  whole  cost  of  the 
contract  as  estimated,  it  would  give  an  amount  to  compare 
against  the  "cost  in,"  showing  an  over  or  under-run  at  any 
stage  of  operation  in  the  cost.  The  whole  cost  of  a  contract 
of  the  lump  sum  class  is  taken  on  this  schedule  at  its  selling 
price,  divided  by  110,  thereby  showing  a  cost  which,  with 
10  per  cent  added,  will  equal  the  contract  price.  Everything 
should  be  done  to  keep  the  contractor  familiar  with  his  financial 


136  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

condition  and  he  should  get  a  condensed  statement  at  monthly 
periods  of  the  volume  of  business  done. 

The  Financial  Statements. — The  statements  of  most 
moment  and  therefore  of  most  interest  to  the  contractor  are 
those  making  up  the  annual  or  semi-annual  report.  While  the 
number  of  these  statements  varies  with  the  size  of  the  business 
and  the  extent  of  the  operations  every  report  should  include 
the  following  statements  and  exhibits: 

1.  Comparative  Balance  Sheet. 

2.  Profit  and  Loss  Statement. 

3.  Statement  of  General  Expense. 

4.  Schedule  of  Profits  taken  on  Unfinished  Contracts  with  Forecast 
to  Complete. 

5.  Schedule  of  Contracts   Closed  and  Jobbing  Cost  and   Income 
for  the  Year. 

In  the  remaining  pages  of  this  chapter  a  complete  presenta- 
tion is  given  of  the  above  statements.  Forms  13,  14,  15,  16 
and  17.  The  form  and  content  of  the  Balance  Sheet  follows 
the  standard  method  of  presentation  and  contains  few  items 
peculiar  to  the  contracting  business.  The  content  of  the 
Profit  and  Loss  Statement  requires  no  further  comment  as  the 
methods  of  obtaining  the  figures  shown  therein  have  been 
discussed  in  detail  in  preceding  pages.  In  the  Schedule  of 
Profits  Taken  (Form  16)  it  should  be  noted  that  the  forecast 
to  complete  the  unfinished  work  is  calculated  at  the  bottom  of 
the  left-hand  page.  As  the  figures  interlock  throughout  the 
five  statements,  their  study,  in  the  light  of  the  preceding  dis- 
cussion, becomes  self-explanatory. 


THE  FINANCIAL  STATEMENTS 
FINANCIAL  FORECAST  FOR  MONTH  OF  JANUARY,  1920 


137 


Date 

Receipts 

Auxiliary        Amount 

I 

2 

15 
20 

20 

Bank  Balances,  Manhattan  ( 
Corn  Exchan 
First  Nation 
Hanover  Nai 

Collections  from  Customers  . 

>) 

40 
15 
25 
32 

24 
29 

000 
000 
000 
000 

625 
550 



112 
310 

54 
3 

000 
000 

175 
000 

gp 

al 

Lion 

l] 

Notes  Payable,  Manhattan  ( 
First  Nation) 

Miscellaneous  

3o 

,1 

31 

Total  

479 

175 

Disbursements 

31 
31 
15 
20 

31 

Bills  to  be  Liquidated  

25 
30 

000 
000 

177 
93 

55 
2 

000 
000 

000 
000 

Payroll  and  Expenses  

Notes  Payable,  Manhattan  ( 
First  Nation! 

Miscellaneous  

)o 

U 

31 

— 

Total  

327 

152 
112 
40 

000 

175 
000 
175 



31 
2 

Bank  Balance  

Bank  Balance  Bro't  Down  . 

Current  Increase           

Current  Decrease  

Approximate  Business 
Previous  Month 

Debit 

Credit 

Accrued 
Accrued 
General  ' 
Net  Profi 

Sales  

175 
10 

000 
000 

200 

185 
15 

000 

000 
000 

Cost  

Exercise               

t  Estimated        

FORM  12. — Financial  Forecast. 


138   PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


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Comparative  Balance  S 

ASSETS 
CURRENT: 
Cash  in  Bank  
Funds:  Foremen  and  Pet 

Accounts  Receivable  '  'Cu 
Less:  Unearned  Sales.  . 

Balance:  Amount  Due  ar 
Notes  Receivable  

Inventories:  Store  Room 
plies  
Unbilled  Costs  

Deposit  Account  "Bids". 

Toto/  Current  Assets  .  .  . 
I.\T  A'.S  7'  JV/JSAT  TS—  STOCP 
DEFERRED  CHARGES  T( 
Unfinished  Contract  Cost 
Sundry  Advances,  as  per 

To/al  Deferred  Charge 
FIXED  ASSETS: 
Plant  Equipment  
Less:  Reserve  for  Depn 

Furniture  and  Fixtures  .  .  . 
Leas:  Reserve  for  Depn 

Total  Fixed  Assets  .  .  . 
TOTAL  ASSETS... 

THE  FI. \AXCIAL  STATEMENTS 


139 


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140  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 

Exhibit  B 
L.  K.  COMSTOCK  &  Co.,  INC. 

NEW  YORK 

Statement  of  Profit  and  Loss 
For  Year  Ending  December  31,  1919 
SALES: 

Income  on  Contracts  Closed $1,285,190.00 

Income  on  Contracts  Open 913,577.53 


TOTAL  EARNED  CONTRACT  SALES.   $2,198,767.83 
COST: 

Expense,  Labor  and  Material 

direct  on  Closed. $1,099,945.00 

Expense,  Labor  and  Material, 

direct  on  Open 828,946.42 


TOTAL  ACCRUED  CONTRACT  COST.     1,928,891.42 


GROSS  PROFIT  ON  CONTRACTS.. . .  $269,867.11 

Income  on  Jobbing  Work  Billed $      80,280.00 

Cost  of  Expense,  Labor  and  Material  direct 

on  above 55,757.80 


GROSS  PROFIT  ON  JOBBING  WORK.  .  24,522.20 


TOTAL  GROSS  PROFIT  ON  SALES.  .  $294,398.31 

GENERAL  EXPENSES: 

Engineering  Expense $      18,882.94 

Selling  Expense 31,340.28 

Administrative  Expense    67,210.77 


TOTAL  GENERAL  EXPENSE $1 17,433.99 


NET  PROFIT  FROM  OPERA TIONS .  $176,964.32 

DEDUCT:    OTHER  INCOME  AND  EXPENSE: 

Interest  and  Discount  Given $      17,000.00 

Less:  Interest  and  Discount  Taken 9,000.00 

TOTAL  NET  DEDUCTIONS. .  8,000.00 


NET  PROFIT  FOR  YEAR  1919 $168,964.32 

FORM  14. — Profit  and  Loss  Statement. 


THE  FINANCIAL  STATEMENTS                        141 

Exhibit  C 
L.  K.  COMSTOCK  &  Co.,  INC. 
NEW  YORK 
Statement  of  General  Expense 
For  the  Year  Ended  December  31,  1919 

Expense 
Classifi- 
cation 
Number 

Nature  of  Expense 

Amount 

Total 

Detail 

E  1 
2 
3 
4 

S   1 
2 
3 
4 

A  I 
2 
3 
4 
5 
6 
7 
8 
9 
10 
11 

12 
13 
14 
15 
16 
17 
18 

ENGINEERING  

$   18,882.94 

31,340.28 
67,210.77 

$10,000.00 

5,200.00 
2,970.27 
712.67 

Salaries,  Engineers  

Traveling  Expense  .  .           ... 

Supplies,  Stationery,  Ink,  etc  
Tools  

SELLING  

$12,000.00 
11,200.00 
5,400.96 
2,739.32 

Salaries,  Salesmen  

Commissions  

Traveling  and  Entertaining.    .    .    . 

Advertising  

ADMINISTRATIVE  

$20,000.00 
14,500.00 
1,200.00 
3,700.00 
6,000.00 
3,200.00 
300.00 
360.00 
1,000.00 
700.00 

1,000.00 
1,400.00 
1,200.00 
470.00 
3,400.00 
8,200.00 
370.00 
210.77 

Officers  Salaries  

Office  Salaries  

Telephone  and  Telegraph  . 

Stationery  and  Printing  

Rent  

Legal  

Towel  Service  

Water  

Dues  and  Subscriptions     

Insurance  Liability  

Reserve  for  Depreciation  of  Furni- 
ture and  Fixtures  

Insurance  Fire  

Postage       

Freight  and  Express  

Taxes  State  

Taxes  Federal              

Labor  and  Repairs  

Miscellaneous  

Total  General  Operating  Expense.  .  . 
ADD:  OTHER  EXPENSES: 
NET  INTEREST  AND  DIS- 
COUNT DEDUCTIONS.  .  .  . 
TOTAL     OVERHEAD     EX- 
PENSE   

$117,433.99 
8,000.00 

$125,433.99 

FORM  15. — Statement  of  General  Expense. 


142  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


L.  K.  COMSTO 

NEW 

Schedule  of  Profits  Taken  on  Unfinished  Contrac 


1 

2 

3 

4 

Contract 
Number 

Name 

Location 

Direct  Cost  Debit 

Expense 

Labor 

Material 

101 
2 
3 
4 
5 
G 
7 
8 
9 
110 
1 
2 
3 
4 
5 
6 
7 
8 
9 
120 
1 
2 

Hartford,  Conn. 
Springfield,  Mass. 
New  York,  N.  Y. 
New  York,  N.  Y. 
New  York,  N.  Y. 
Bridgeport,  Conn. 
New  Haven,  Conn. 
New  York,  N.  Y. 
New  York,  N.  Y. 
New  York,  N.  Y. 
New  York,  N.  Y. 
Philadelphia,  Pa. 
Troy,  N.  Y. 
Chicago,  111. 
Buffalo,  N.  Y. 
Brooklyn,  N.  Y. 
New  York.  N.  Y. 
New  York.  N.  Y. 
Jersey  City,  N.  J. 
Boston,  Mass. 
Washington,  D.  C. 
Wheeling,  W.  Va. 

S    750.00 
225.00 
95.00 
470.00 
42.50 
177.00 
96.92 
325.00 
166.00 
242.00 
186.00 
94.00 
307.00 
221.00 
525.00 
412.00 
96.00 
177.00 
230.00 
150.00 
270.00 
90.00 

S  12,340.00 
1,760.00 
15,960.00 
16,712.00 
2,762.00 
3,425.00 
3,950.00 
2.470.00 
9,693.00 
1,720.00 
1,290.00 
4,212.00 
25,070.00 
13,250.00 
12,977.00 
18,005.00 
1,276.00 
9,700.00 
14,225.00 
55,700.00 
33,347.00 
1,740.00 

S  25,670.00 
3,345.00 
35,000.00 
33,400.00 
5,590.00 
7,224.00 
8,500.00 
5,276.00 
19,704.00 
4,290.00 
3,396.00 
9,740.00 
52,420.00 
29,876.00 
18,740.00 
42,950.00 
3,395.00 
22.400.00 
31,967.00 
120,405.00 
75,221.00 
3,506.00 

T   Brown  &  Co  

Geo   P   Edwards  &  Son  

Wm.  Goodwin  &  Co  

R   Haskell  &  Bro 

International  Shipping  Corp.  .  .  . 
Johnson  &  Fanning  

J.  P.  Moore  &  Co  

S  J   Nelson  &  Bro 

F.  C.  Peterson  &  Bro  

Silleck  &  Burton  

C.  F.  Collier  Mfg.  Co  

Geo.  A.  Fuller  Co  

F.  T.  Ley  Co  

Total.  .  . 

S5.347.42 

S261.  584.00 

S562.015.00 

TOTAL  SALES  REQUISITIONED. 
TOTAL  SALES  BILLED.. . 


TOTAL  EARNED  SALES 

TOTAL  DIRECT  COST  OF  SALES 

GROSS  PROFIT  EARNED  ON  UNFINISHED  CONTRACTS  TO  DATE. . 
FORECAST  TO  COMPLETE: 

ADD:  Profit  of  10  %  on  estimated  cost  to  finish  "Lump  Sum"  Contracts 

Profit  of  12K  %  on  estimated  cost  to  finish  "Time  Material"  Contracts. 

ESTIMATED:  Total  Sales — To  be  billed  on  Time  and  Material  Contracts 

Total  Sales — To  be  requisitioned  on  Lump  Sum  Contracts 

Total  Sales — To  complete  all  contracts 

ESTIMATED  TO  COST:  Lump  Sum  Contracts 

Time  and  Material  Contracts 

TOTAL  DIRECT  COST 

PLUS:  Overhead  Estimated  at  5  %  on  cost 

TOTAL  COST... 


ES  TIM  A  TED  NET  PROF  I T . 


FORM  16. — Schedule  of  Profits 


THE  FINANCIAL  STATEMENTS 


CK  &  Co.,  INC. 

YORK 

ts,  December  31,  1919  and  Forecast  to  Complete 


143 

Schedule  3 


5678 

9 

10 

11 

Sales  Credit 

Cash 
Collected 
on 
Account 

Estimated  Cost  to  Finish 

Total 

Earned 

Unearned 

Lump  Sum 

Time  and 
Material 

Requisi- 
tioned 

Billed 

Lump  Sum 

$  38,760.(Xr 
5,330.00 
51,055.00 
50,582.00 
8,394.50 
10,826.00 
12,546.92 
8,071.00 
29.563.00 
6,252.00 
4,872.00 
14,046.00 
77,797.00 
43,347.00 
32,242.00 
61,367.00 
4,767.00 
32,277.00 
46,422.00 
176,255.00 
108,838.00 
5,336.00 

$  42,636.00 

56,160.50 
55,640.20 
9,233.95 
11,908.60 

8,878.10 
32,519.30 

5,359.20 
15,450.60 
85,576.70 

35,466.20 
67,503.70 

35,504.70 
51,064.20 
193.880.50 
119,721.80 

$  5,795.00 

14,115.28 
7,033.00 

48,765.00 
5,362.00 

6,003.00 

$    107,364.00 

143,839.50 
19,359.80 
90,766.05 
60,316.40 

31,121.90 
142,480.70 

49,860.80 
69,549.40 
814,423.30 

114,533.80 
183,456.30 

114,495.30 
498,935.80 
26,119.50 
30,278.20 

$  35,000.00 
5,795.00 
42,500.00 
45,000.00 
8,000.00 
10,000.00 
14,115.28 
6,500.00 
25,000.00 
5,700.00 
4,000.00 
10,000.00 
78,000.00 
46,250.00 
35,000.00 
55,000.00 
5,362.00 
28,000.00 
45,000.00 
170,000.00 
100,000.00 
6,003.00 

$      97,603.63 

130,763.18 
17,599.81 
82,514.59 
54,832.18 

28,292.63 
129,527.70 

45.328.00 
63,226.72 
740,384.81 

104,122.63 
166,778.45 

104,086.63 
453,578.00 
23,745.19 
27,525.63 

$      50,000.00 

100,000.00 
42,000.00 

150,000.00 
35,000.00 

150,000.00 

$2,496,900.75 

$780,225.28 

$2,269,909.78 
226,990.97 

$    527,000.00 
65,875.00 

$826,504.25 
87,073.28 

$913,577.53 
828,946.42 

$  84,631.11 

$    592,875.00 
2,496,900.75 

$2,269,909.78 
527,000.00 

$3,089,775.75 
2,936,755.26 

$2,796,909.78 
139,845.48 

$    153.020.49 

Taken  on  Unfinished  Contracts. 


144  PRACTICAL  ACCOUNTING  FOR  GENERAL  CONTRACTORS 


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PART  II 
FIELD  ACCOUNTING  CONTROL 

CHAPTER  XI 
COST  ACCOUNTS  AND  UNIT  COSTS 

Need  for  Cost  Accounting. — In  the  first  part  of  this  book 
consideration  has  been  given  to  the  forms,  records  and  entries 
required  to  assemble  expenditures  for  materials,  supplies, 
services,  salaries  and  wages  in  such  a  way  as  to  show  (1)  the 
cost  of  each  contract  and  job,  (2)  the  cost  of  all  contracts 
and  jobs,  (3)  the  individual  and  total  amounts  of  material, 
labor  and  expense,  (4)  the  actual  earned  income  and  (5)  any 
other  information  pertinent  to  the  financial  management  of  a 
contractor's  business.  Successful  contracting,  however,  de- 
pends in  part  upon  the  ability  of  the  engineering  department  to 
devise  ways  and  means  of  recording  and  classifying  the  kinds 
of  work  done  on  each  contract  or  job  for  the  purpose  of  com- 
paring the  cost  of  this  work  in  its  detail  with  the  cost  of  similar 
work  or  with  past  performances. 

It  is  not  sufficient  for  the  contractor  to  know  that  on  a  large 
piece  of  construction  work  so  much  has  been  expended  for 
labor,  material,  and  expense,  or  that  in  the  erection  of  a  build- 
ing so  much  has  been  expended  on  excavating,  bricklaying,  ce- 
ment work  and  so  on.  For  control  purposes  he  should  know, 
for  instance,  the  labor  cost  of  digging  the  basement,  sheet- 
ing and  bracing  the  banks,  shoring  adjoining  buildings 
if  necessary,  under-pinning,  pumping,  and  so  on;  he  must 
know  the  quantity  of  lumber,  cement,  sand,  stone,  brick,  and 
steel  of  various  kinds  used  in  the  construction  of  a  particular 
building  and  the  labor  cost  of  particular  parts  or  floors  of  this 
building;  and  similarly,  in  the  operation  of  his  office,  he  requires 
to  know  the  detailed  cost  of  the  engineering  department  for 
10  145 


146  FIELD  ACCOUNTING  CONTROL 

plans,  photographs,  engineers'  salaries,  architects'  fees,  etc., 
or  of  the  general  office  for  rent,  light,  heat,  stationery,  tele- 
phone, telegraph,  equipment  and  the  like.  A  method  must  be 
devised  of  splitting  up  the  expenditures  represented  by  invoices 
and  payrolls  and  charging  them  to  suitably  entitled  cost 
accounts.  This  requires  a  detailed  account  classification  so 
arranged  and  symbolized  that  when  the  symbol  is  entered  on 
the  original  invoice,  time  sheet,  stores  order  or  other  loose 
paper  the  distribution  can  be  accurately  made  to  the  proper 
cost  account. 

Objects  of  Cost  Accounting. — The  primary  object  of  keeping 
such  cost  accounts  are  twofold : 

1.  They  enable  the  management  to  analyze  unit  costs,  that  is  the 
cost  of  doing  a  particular  piece  of  work,  with  a  view  to  securing  the 
minimum  cost  possible  under  existing  conditions. 

2.  They  provide  data  upon  which  to  base  estimates  of  the  probable 
cost  of  projected  work. 

As  a  result  of  the  analysis  of  unit  costs,  followed  by  a  com- 
parison of  the  items  with  corresponding  items  of  similar  work 
previously  done,  the  management  may  discover : 

1.  Excessive  use  of  materials  in  erecting  a  given  structure. 

2.  Excessive  use  of  supplies  such  as  coal,  lumber,  etc.,  in  operating 
a  plant  or  in  construction  work,  whether  due  to  ignorance,  careless- 
ness or  theft. 

3.  Inefficiency  of  foremen. 

4.  Inefficiency  of  workmen. 

5.  Padded  payrolls. 

6.  Excessive  waste  of  time  due  to  plant  breakdowns,  the  shifting  of 
plant,  waiting  for  materials  and  supplies,  and  so  on. 

7.  Improper  design  of  plant. 

Cost  keeping  secures  many  incidental  advantages  the  most 
important  of  which,  from  the  point  of  view  of  economy,  are 
that  fewer  "bosses"  are  required  on  certain  classes  of  work, 
for  the  report  card  is  often  more  persuasive  than  the  eye  of  the 
taskmaster;  one  skilled  manager  can  direct  more  men  and  with 
much  greater  effectiveness  than  is  possible  where  a  cost  system 
does  not  exist ;  and  systematic  analyses  of  costs  lead  inevitably 


COST  ACCOUNTS  AND  UNIT  COSTS  147 

to  a  study  of  reasons  for  differences  in  cost  and  this  study  is 
the  first  step  leading  to  the  invention  of  machines  and  to  new 
methods  for  reducing  costs. 

Construction  costs  on  the  general  books,  as  we  have  seen, 
comprise  labor,  material,  and  expense,  plus  the  proportion  of 
expense  applicable  to  the  period  and  to  each  contract  or  job. 
Perhaps  the  majority  of  small  contractors  and  not  a  few  large 
concerns  carrying  on  operations  on  a  big  scale  are  contented 
with  this  simple  classification  of  costs.  They  know  what  a 
piece  of  contract  work  costs  as  a  whole  and  they  know  the 
price  they  receive  for  it,  the  difference  constituting  the  profit. 
But  if  they  do  not  keep  a  record  of  the  units  of  cost  absorbed 
in  the  work  and  if  a  construction  job  of  any  size  is  operated, 
without  keeping  a  detailed  system  of  cost  accounts,  there  is  no 
effective  control  over  expenditures. 

Cumulative  Classified  Unit  Cost  Record. — Control  over  the 
units  of  cost  incurred  on  set  price  or  lump  sum  contracts  and 
job  work  begins  with  the  keeping  of  a  "Cumulative  Classified 
Unit  Cost  Record."  All  contractors  have  an  estimating 
department  and  this  cost  sheet,  as  illustrated  in  Form  18, 
is  one  of  its  most  important  records.  This  record  has  no 
connection  with  the  accounting  branch  of  the  business,  but  is 
essential  as  a  guide  to  proper  information  concerning  the  work 
in  operation.  It  is  an  analysis  of  the  total  quantities  of 
materials  and  the  cost  of  labor  and  expense  which  constitutes 
direct  charges  for  items  embodied  in  the  contract.  When 
filed  as  a  record  of  work  performed,  it  is  a  valuable  reference  to 
measure  bids  on  any  work  of  a  parallel  nature  which  may  come 
to  the  contractor. 

This  unit  cost  record  is  kept  in  the  engineering  and  esti- 
mating department  where  the  units  of  each  class  of  materials 
are  entered  for  the  estimated  quantity  required  to  cover  the 
contract.  This  information  comes  from  the  engineer,  who 
determines  the  number  of  units  of  materials  by  referring  to 
the  specifications  embodied  in  the  contract.  He  also  forecasts 
the  cost  of  labor  and  direct  expense  necessary  to  perform 
the  work.  Thus  the  purpose  of  this  record  is  to  show  at  any 


148 


FIELD  ACCOUNTING  CONTROL 


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COST  ACCOUNTS  AND  UNIT  COSTS  149 

time  whether  or  not  the  progress  of  work  is  keeping  pace  with 
the  time  agreed  upon  to  complete,  and  also  to  know  if  the 
"cost  in,"  is  over  or  under  estimated  at  certain  stages  of  the 
work.  The  record  is  illustrated  on  page  148  (Form  18). 

A  description  of  the  materials  is  entered  in  the  margin  for  the 
materials  classification,  and  the  number  of  estimated  units  is 
entered  in  the  margin  "Nature  of  Unit"  on  the  line  designated 
E.  Any  increase  or  decrease  in  the  original  estimated  number 
of  units  is  shown.  The  original  quantity  estimated  plus  any 
addition  or  minus  any  deduction  in  the  next  space  following 
gives  the  last  accumulated  total  to  date. 

The  line  "0"  (on  the  line  under  E),  records  the  number  of 
units  delivered  to  the  job,  and  the  total  units  installed  deducted 
from  the  last  total  on  line  "  O"  will  be  the  number  of  units  of 
that  class  on  hand.  If  at  the  completion  of  the  work  the  last 
total  of  "E"  exceeds  that  of  "0,"  there  are  that  many  units 
under  the  estimate,  plus  of  course  any  units  which  may  be  on 
the  ground.  On  the  other  hand,  if  the  last  total  of  "0," 
exceeds  that  of  "E"  the  estimate  has  been  exceeded  by  that 
number  of  units,  less  any  on  the  ground. 

The  units  left  over  on  the  completion  of  work  should  be 
entered  on  the  line  "O"  in  red.  The  number  of  units  left 
over  should  be  the  inventory  number  of  units,  as  shown  by  the 
report  of  the  number  installed  as  against  those  delivered  to  the 
job,  which  number  may  be  more  or  less.  If  there  are  more 
than  the  report  calls  for,  it  may  be  that  the  units  installed  have 
been  over  stated ;  or,  if  less,  understated.  If  such  is  the  condi- 
tion, the  credit  to  the  contract  for  the  number  of  units  and 
their  value  will  be  reflected  in  the  cost  as  over  or  under  the 
actual  cost.  When  the  number  of  units  left  over  are  returned 
to  the  store  room  or  transferred  to  another  contract  or  job, 
a  transfer  ticket  is  issued  for  their  value  at  cost,  with  which 
the  completed  work  is  credited  and  the  new  contract  is  charged. 

The  forernan  on  the  work  should  keep  a  record  of  the  classifi- 
cations of  materials  used  in  the  contract,  charging  each  class 
with  the  number  of  units  received,  and  crediting  it  with  the 
number  absorbed  by  construction  and  transfer.  The  difference 


150  FIELD  ACCOUNTING  CONTROL 

between  this  charge  and  credit  should  be  the  actual  inventory, 
both  book  and  physical.  This  record  could  be  simplified  by 
the  use  of  a  set  of  cards  arranged  in  a  number  classification  of 
materials  showing  the  units  of  materials  received  (Classified 
A  1  up),  and  another  arranged  in  the  same  order  for  units 
absorbed  in  construction  or  transferred  (B  1  up),  the  difference 
between  the  two  being  the  inventory.  This  method  of  keeping 
the  record  would  prevent  any  confusion  of  charge  and  credit 
which  might  happen  through  the  foreman's  ignorance  of  the 
principles  of  debit  and  credit.  If  there  should  happen  to  be  a 
very  big  shortage  of  units  on  the  ground,  as  against  the  differ- 
ence between  the  units  received  and  those  absorbed  in 
construction  or  transferred,  the  cause  should  be  located  and 
correspondingly  adjusted. 

Each  week  the  amount  of  the  payroll  expense  should  be 
entered  on  the  record  as  shown  in  the  illustration.  The 
estimate  of  the  whole  cost  is  entered  at  the  top  of  the  two 
columns  of  "Estimated  Labor  and  Expense"  and  the  footings 
of  these  amounts  at  any  time,  will  show  the  outlay  for  these 
two  costs  to  date. 

It  might  seem  almost  impossible  to  operate  this  sort  of 
control  on  a  big  construction  job,  by  reason  of  the  way  material 
is  scattered  when  unloaded  at  different  locations;  but  this 
difficulty  could  be  overcome  by  running  a  departmental 
record  according  to  the  location,  and  the  records  could  be 
decentralized.  By  this  method  of  keeping  cost  on  the  field, 
the  accounting  records  should  reconcile  with  the  report  and 
estimate  of  the  cost  engineer,  and  a  comparison  should 
be  made  between  the  two  at  intervals  and  any  variation 
adjusted  to  bring  the  accounting  and  engineering  departments 
in  agreement. 

Contract  Cost  Financed  by  Owner. — When  a  contract  is 
financed  not  by  the  contractor  but  by  the  owner  it  is  customary 
to  keep  the  accounting  records  in  an  office  adjacent  to  the 
work  and  as  the  records  relate  only  to  the  one  job  the  system 
of  field  accounting  is  proportionably  simple.  In  a  later  chapter 
the  books  and  records  required  for  the  operation  of  such  a 


COST  ACCOUNTS  AND  UNIT  COSTS  151 

system  will  be  taken  up  after  the  description  of  the  cost  account 
classification  and  its  symbolization  on  which  the  system  is 
based.  In  this  chapter  such  matters  will  be  discussed  as  are 
preliminary  to  the  operation  of  field  accounting. 

When  a  contract  is  financed  by  the  owner  it  is  usually  on 
the  basis  of  cost  plus  a  fixed  fee  and  the  agreement  may  or  may 
not  provide  for  a  percentage  of  any  saving  on  the  original 
estimate  to  be  paid  to  the  contractor  in  addition  to  the  fixed 
fee.  The  nature  of  such  a  contract  is  defined  by  its  title. 
The  total  cost  estimated  by  the  contractor's  engineer  is  the 
basis  for  the  amount  of  the  fee.  If  the  contractor  performs 
the  work  under  this  cost,  in  some  instances  he  is  rewarded 
with  a  bonus  of  10  per  cent  of  the  saving,  while  on  the  other 
hand,  if  the  cost  exceeds  that  of  the  estimate  on  which  the 
contract  was  awarded,  the  contractor  is  subjected  to  a  penalty 
reducing  the  fixed  fee.  This  penalty  may  be  the  amount  of 
the  fixed  fee  multiplied  by  the  rate  of  per  cent  the  excess  cost 
shows  when  divided  by  the  amount  of  the  estimated  cost. 

For  example,  if  a  contract,  estimated  to  cost  $1,000,000  with 
a  fixed  fee  of  $50,000  is  awarded  under  the  above  under- 
standing, it  would  be  adjusted  as  follows: 

FIRST    Contract,  estimated  cost $1,000,000 

Cost  at  completion 900,000 


Saving  under  the  estimate  10  per 

cent 100,000 

Agreed  Fee $50,000 

Saving  $100,000 

Bonus  10  per  cent  on  above 10,000 


Total  Fee  to  Contractor $60,000 

SECOND    Cost  at  Completion 

Contract,  estimated  cost 


Excess  cost  over  the  estimate  10  per  cent $    100,000 

Agreed  Fee $50,000 

Penalty — 10  per  cent  of  above 5,000 


Net  Fee  to  Contractor $45,000 


152  FIELD  ACCOUNTING  CONTROL 

A  cost  plus  fixed  fee  contract  is  generally  financed  by  a 
separate  bank  account  replenished  by  the  owner's  funds.  An 
estimate  of  the  amount  needed  to  liquidate  vouchers  should  be 
sent  to  the  owner  at  regular  periods  to  keep  the  bank  balance 
at  least  10  per  cent  above  the  approximate  amount  needed  to 
cover  current  expenditure.  When  the  copies  of  vouchers  to 
be  sent  to  the  owner,  have  been  verified  and  returned  by  the 
vendors,  a  statement  with  vouchers  attached  is  given  to  the 
owner,  showing  the  amounts  actually  paid  for  payrolls,  mate- 
rial, and  work  performed  by  sub-contractors.  That  total  is 
then  credited  to  the  contractor  for  work  performed  under 
the  contract. 

The  fact  that  the  records  are  at  all  times  open  to  the  owner's 
inspection  is  an  assurance  to  him  of  honest  treatment.  If 
purchase  orders  are  submitted  for  his  approval  before  mailing, 
and  if  invoices  are  also  subject  to  his  approval  before  payment, 
the  responsibility  rests  entirely  upon  him,  thus  preventing  an 
accumulation  of  disputed  items  which,  if  left  until  final  settle- 
ment of  the  contract,  might  not  be  readily  or  satisfactorily 
explained  and  adjusted. 

Sub -Contracts. — In  the  case  of  work  performed  by  sub- 
contractors on  a  set  price  or  lump  sum  basis  a  record  is  kept  of 
the  contract  price  and  extras.  This  cost  is  included  in  the 
requisition  for  payment,  and  is  treated  as  an  invoice.  All 
other  forms  of  sub-contracts  are  also  invoiced  for  work  per- 
formed, and  are  classed  in  the  records  as  ordinary  vendors. 

In  some  cost  plus  a  percentage,  or  fixed  fee  Contracts, 
the  general  contractor  pays  for  the  labor  and  material  connected 
with  a  sub-contract,  doing  the  purchasing  himself,  and  liquidat- 
ing the  invoices,  and  the  sub-contractors  labor  force  may  be 
included  in  the  general  contractor's  payroll.  In  other  instances , 
the  sub-contractor  pays  for  his  own  labor  and  material,  the 
payment  being  made  by  him  on  the  approval  of  the  general 
contractor.  If  such  is  the  case,  the  sub-contractor  at  different 
intervals  makes  a  requisition  on  the  general  contractor  for 
reimbursement  for  the  amount  disbursed,  at  the  same  tune 
giving  him  a  statement  of  the  amount,  with  receipted  support- 


COST  ACCOUNTS  AND  UNIT  COSTS  153 

ing  vouchers  attached.  The  foregoing  refers  to  percentage  and 
fixed  fee  contracts  only,  as  in  all  other  classes  such  as  lump  sum, 
unit  price,  etc.  the  sub-contractor  supplies  both  labor  and 
material  and  pays  for  both. 

It  is  bad  practice  to  have  one  sub-contractor  favored  on  one 
job  with  two  classes  of  contracts  covering  different  kinds  of 
work.  For  example,  suppose  a  sub-contract  is  made  for 
painting  on  a  lump  sum  basis,  and  to  the  same  party  another 
contract  is  given  on  a  fixed  fee  basis  for  paper-hanging. 
Assume  that  the  sub-contractor  supplies  his  own  labor  on  the 
lump  sum  contract  and  pays  for  it  out  of  his  own  funds,  but  that 
the  general  contractor's  payroll  includes  the  labor  for  the  fixed 
fee  contract.  A  journeyman  who  is  a  painter,  is  usually  a 
paperhanger  as  well,  or  covers  the  two  trades.  Therefore  when 
the  condition  is  as  above  described  it  is  possible  for  a  paper- 
hanger,  who  is  on  the  fixed  fee  contract  payroll  paid  by  the 
general  contractor,  to  be  occupied  with  painting  work  for  which 
the  sub-contractor  is  to  be  paid  in  his  lump  sum  contract. 
If  such  a  thing  happens,  the  general  contractor  pays  for  work 
of  paperhanging  he  does  not  get,  while  the  sub-contractor  gets 
painting  done  for  which  he  does  not  pay.  Where  contract 
work  is  handled  in  this  way  the  badges  worn  by  the  men 
should  be  numbered  and  sufficiently  distinctive  to  show  whether 
a  man  is  on  the  contractor's  payroll  or  not. 


CHAPTER  XII 
ORGANIZATION  AND  PERSONNEL 

Field  Personnel. — When  construction  work  of  any  magnitude 
is  contracted  for  on  a  fee  basis,  the  owner  usually  finances  the 
project  and  liquidates  the  invoices  as  they  become  due  for 
payment.  Under  these  conditions  a  clerical  force  is  required 
to  represent  and  look  after  the  owner's  interests,  and  a  field 
accounting  personnel  is  supplied  by  the  contractor  to  take  care 
of  the  technical  and  detail  side  of  the  construction  work.  The 
number  of  the  personnel  and  the  duties  in  each  case  naturally 
vary  with  the  conditions  but  to  illustrate  the  organization 
required  for  field  accounting  work  a  description  is  given  below 
of  the  organization  employed  to  operate  a  big  housing  contract 
on  which  the  author  was  engaged  as  auditor  in  charge  of  the 
owner's  interests.  The  contract  was  for  700  houses,  and  was 
given  to  the  contractor  on  a  fee  basis.  All  invoices  were  liqui- 
dated by  the  owner,  but  the  material  was  ordered  by  the 
contractor  and  billed  to  the  owner  at  the  instance  of  the  con- 
tractor as  agent. 

The  staff  on  the  field  representing  the  owner  consisted  of : 

Field  Auditor  and  Assistants. 
Works  Superintendent. 
Disbursing  Officer. 
Work  Inspectors. 
Cost  Engineer. 

The  field  office  force  supplied  by  the  contractor  comprised : 

Contractor's  Representative. 

Paymaster. 

Bookkeeper. 

Purchasing  Agent. 

Material  Expediter. 

154 


ORGANIZATION  AND  PERSONNEL  155 

Timekeepers 

Material  Receiving  Clerks. 

Field  Time  Checkers. 

Field  Superintendent. 

Stenographers  and  Typists. 

Porters. 

Watchmen  for  Police  Duty. 


Duties  of  the  Auditor.— The  auditor  should  familiarize  him- 
self with  the  conditions  embodied  in  the  contract,  so  that  he 
can  intelligently  determine  the  correctness  of  the  invoices 
submitted  for  his  approval  before  passing  them  for  payment. 
He  must  determine  whether  or  not  the  expenditures  called  for 
should  be  included  in  the  cost  to  the  owner,  or  treated  as  an 
expense  of  the  contractor  for  plant  items,  etc.,  which  he  is  to 
furnish.  He  must  rely  on  his  subordinates  for  the  correctness 
of  extensions,  proper  symbols  of  distribution,  and  trade  dis- 
counts to  be  deducted.  Accordingly  he  has  to  scrutinize  very 
closely  these  invoices  when  auditing  them;  if  he  finds  them 
correct  in  their  preparation,  he  signs  them,  and  they  are  then 
given  to  the  works  superintendent  and  contractor's  representa- 
tive for  their  approval.  On  their  return  to  him,  he  gives  them 
to  the  bookkeeper  for  a  register  number;  the  bookkeeper  then 
retains  the  triplicate  for  his  files,  and  the  original  and  duplicate 
are  given  to  the  auditor  to  vouch  for  payment.  The  method  of 
recording  the  invoices  on  the  field  accounting  books  will  be 
explained  in  Chap.  XIV. 

The  auditor  is  th  us  comptroller  of  the  owner's  financial  connec- 
tion with  the  contract,  and  it  is  on  him  the  owner  depends  for 
the  economic  and  careful  disbursement  of  his  funds.  His 
position  is  one  of  responsibility  as  well  as  authority;  in  fact, 
he  is  the  "boss  "  of  the  job  as  far  as  the  accounting  is  concerned. 

Duties  of  Auditor's  Assistants. — The  chief  duty  of  the 
auditor's  assistants  is  to  check  expenditures  for  labor  and 
materials.  Therefore  they  should  be  responsible  for  the 
receipt  of  material  and  the  signature  of  one  of  them  should 
appear  on  every  material  receipt  in  conjunction  with  the  con- 


156  FIELD  ACCOUNTING  CONTROL 

tractor's  checker;  it  is  the  assistant's  signature  on  which  the 
auditor  must  rely  for  the  proper  certification  of  invoices  for 
payment. 

As  a  check  on  expenditures  for  labor,  on  payroll  day  all  the 
receipts  from  the  payee,  when  payment  is  made  for  labor 
services  rendered,  should  be  collected.  The  unclaimed  pays 
must  be  taken  over;  these  are  placed  in  a  box  which  has  an 
opening  for  inserting  the  receipt.  If  there  is  more  than  one 
paymaster,  there  should  be  an  auditor's  assistant  at  each 
location  to  collect  these  receipts  and  unclaimed  pays.  If  pay 
day  is  on  Saturday,  on  the  Monday  following  the  receipts 
should  be  taken  from  the  box  and  arranged  in  numerical  order. 
When  the  payroll  comes  in,  the  names  on  which  are  compiled 
in  numerical  order,  the  receipts  should  be  checked  against 
them;  any  unchecked  items  on  the  payroll  represent  the  un- 
claimed pay.  By  this  system  it  is  impossible  to  pad  the  payroll. 
A  detailed  description  of  methods  of  handling  and  checking  the 
payroll  will  be  found  in  Chaps.  XV  and  XVI. 

Duties  of  Disbursing  Agent. — The  disbursing  agent  is  the 
cashier  of  the  job;  the  owner  reports  to  him  the  deposit  of  any 
funds,  which  may  be  subject  to  withdrawal  by  checks  with 
which  he  is  supplied  to  pay  the  vouchers  certified  by  the 
auditor.  These  funds  are  not  placed  to  his  credit  as  a  personal 
bank  account,  as  the  check  is  in  the  name  of  the  owner,  which 
he  signs  as  agent  only.  This  check  is  countersigned,  also,  by 
the  auditor,  and  it  bears  the  number  of  the  voucher  liquidated, 
which  is  typed  in  a  margin  provided  for  that  purpose;  it  also 
bears  a  regular  check  number  series. 

Checks  are  printed  in  sheets  of  five,  and  a  carbon  copy  is 
made  of  each  check  when  typed.  These  copies,  also  rfave  the 
check  number  inserted  on  them  before  being  typed;  in  fact, 
these  numbers  are  a  part  of  the  system  for  the  prevention  of 
any  overrun  of  numbers.  As  the  checks  are  drawn  to  cover 
the  items  to  be  paid  on  the  pay  list,  they  are  signed  by  the 
agent  and  auditor,  and  forwarded  to  the  vendor.  The  agent 
then  puts  the  duplicate  pay  list  on  an  arch  file,  and  this  consti- 
tutes a  record  of  paid  vouchers.  From  this  record  he  makes  a 


ORGANIZATION  A\l)  PERSONNEL  157 

" Disbursement  List"  which  is  an  identical  copy,  with  the  excep- 
tion that  he  prefixes  the  check  number  to  each  voucher  number  ; 
this  is  the  detail  record  of  his  cash  disbursed,  the  duplicate  of 
wliich  is  also  put  in  an  account  file.  To  the  original  disburse- 
ment list  he  attaches  the  copies  of  checks  drawn  and  also  a 
statement  of  the  balance  on  hand  less  the  disbursement  list, 
which  result  is  his  final  balance.  At  the  same  time  he  makes  a 
request  by  letter,  signed  by  both  himself  and  the  auditor, 
for  additional  funds  to  meet  the  payments  of  the  next  period 
as  forecasted  by  the  auditor;  he  then  forwards  these  papers 
to  the  owner. 

His  only  book  of  account  is  a  bound  cash  book  in  which  he 
debits  the  original  funds  allotted  him,  plus  any  additional 
funds.  He  credits  this  book  for  the  total  of  the  disburse- 
ment list,  and  the  balance  is  the  cash  in  bank,  subject  to 
further  withdrawal.  The  original  pay  list  and  vouchers, 
with  original  invoices  attached,  are  mailed  to  the  owner  for 
his  records,  and  this  completes  his  duties.  His  service  is 
only  necessary  on  a  big  job,  as  on  an  ordinary  one,  his 
duties  may  well  be  covered  by  an  assistant  to  the  auditor. 

The  Works  Superintendent. — The  works  superintendent, 
when  on  the  job  is  the  representative  of  the  owner.  He 
jnay  have  under  him  subordinates,  such  as  inspectors  and 
cost  engineers  but  as  this  is  a  treatise  purely  on  accounting, 
there  is  no  need  to  describe  the  duties  of  those  in  control  of 
construction. 

The  Cost  Engineer. — While  the  work  of  the  auditor  and 
cost  engineer  are  of  a  distinctly  separate  nature,  their 
relations  are,  to  a  degree,  interlocked,  in  that  they  determine 
the  progress  of  cost  from  different  angles.  It  is  advisable 
for  them  to  get  together  at  short  periods  and  compare 
notes.,  so  as  to  insure  reconciliation  in  the  cost  figures  shown 
by  both  departments.  ' 

The  cost  engineer  gets  his  detailed  information  at 
intervals  from  the  wrorks  superintendent.  The  labor  and 
material  costs  are  secured  through  the  field  auditor,  these 
being  used  to  check  the  progress  of  the  wrork  as  compiled 


158 


FIELD  ACCOUNTING  CONTROL 


from  quantities  and  values  derived  from  reports  given 
him  by  those  in  positions  of  supervision. 

In  making  up  his  progress  reports,  the  engineer  must 
work  parallel  to  the  units  governing  the  official  estimate 
when  units  are  the  rule,  and  in  the  case  where  lump  sum 
figures  are  given,  he  must  show  the  progress  by  percentages. 
Special  and  close  attention  must  be  given  to  items  which 
are  the  most  conspicuous  part  of  the  work  or  which  form 
the  biggest  percentage  of  the  wrork  as  a  whole — such  as 
masonry,  carpentering,  plastering  and  plumbing  in  .the 
architectural  branch;  and  streets  and  sewers  in  the  engineer- 
ing division.  He  must  scrutinize  carefully  each  daily 
report  of  work  turned  in  by  the  various  foremen  on  the  job 
to  see  that  they  are  careful  to  cover  every  feature  of  the 
work  under  their  supervision  and  that  their  figures  tally 
with  the  amount  of  labor  and  material  absorbed  as  shown  by 
the  records. 

The  percentage  of  work  completed  is  arrived  at  by  secur- 
ing the  per  cent  that  a  specific  branch  of  the  work  bears  to 
the  whole,  which  is  taken  at  100  per  cent.  This  process 
is  called  "weighting  the  items"  which  make  up  the  job 
as  a  whole.  The  method  will  be  readily  understood  by  the 
study  of  the  following  figures: 


Item 

Percentage 
completed 

Weight 

Product 
of  both 

Percentage 
completed 
of  whole 

Excavation     

92 
78 
69 
60 
47 
21 
26 
58 
15 
35 
46 

3 
27 
24 
4 
13 
4 
2 
12 
6 
3 
2 

2 
21 
16 
2 
6 

6 
1 

76 
06 
56 
40 
11 
84 
52 
96 
90 
05 
92 

Masonry  

Carpentry  

Roofing                   .... 

Plastering       .        

Painting          

Hardware  

Plumbing  

Heating              

Lighting            

Sheet  metal  

Total  

100% 

60 

08 

60% 

ORGANIZATION  AND  PERSONNEL  159 

Monthly  Reports  to  Owner. — The  monthly  report  to 
the  owner  comprises  the  following  exhibits  which  will  be 
illustrated  with  interlocking  figures  in  a  later  chapter. 

1.  Statement  showing  cost  to  date  and  summary  of  the  disbursing 
agent's  advances  and  disbursements  to  date. 

2.  Recapitulation  showing  group  cost  of  A  and  B,  which  is  a  recapitu- 
lation taken  from  the  schedule  of  sub-account  costs  of  A  and   B  as 
accumulated  on  the  Construction  Record  to  date,  and  acts  as  a  Trial 
Balance. 

Schedule  A — detail  footings  of  construction  cost  of  each  sub-dis- 
tribution on  the  record  to  date. 

Schedule  B — detail  of  items  debited  to  suspense,  paid  for  but 
undistributed  to  cost. 

3.  Paylist  analysis  for  month,  showing  the  amount  charged  to  owner 
and  credited  to  disbursing  agent. 

4.  Schedule  of  sub-contractors,  showing  the  amount  due  each,  and  the 
over  and  underrun  effect  on  each,  and  a  summary  of  same. 

5.  Status  of  contract  accounts  at  beginning  and  end  of  month,  and 
their  current  entries;  also,  trial  balance  proving  their  correct  operation. 

6.  Schedule  of  unclaimed  wages. 

7.  Schedule  of  collection  bills  and  refunds  paid  during  the  month. 

At  the  end  of  each  week  the  contractor  reports  the 
progress  of  construction  for  all  material  in  and  on  the 
ground,  for  the  purpose  of  arriving  at  a  value  for  insurance, 
the  owner  attending  to  the  issuance  of  the  policy.  This 
report,  while  showing  the  fire  insurance  needed  also  summar- 
izes the  progress  of  the  work  as  a  wrhole.  Insurance 
policies,  however,  do  not  cover  the  cost  of  excavating  cellars 
nor  the  value  of  the  foundations  below  the  level  of  the 
ground,  nor  materials  and  supplies  not  intended  to  be  part 
of  the  building.  Therefore  after  making  out  the  total 
value  of  the  construction  cost  to  date  the  report  should 
deduct  for  items  not  covered  by  the  policies  as  shown 
below : 


160  FIELD  ACCOUNTING  CONTROL 

Total  amount  of  approved  payrolls  and 
invoices  taken  to  account  in  expense 
register $1,593,346.22 

Total  value  of  materials  on  hand  not  yet 

recorded 12,050.78 

Contractor's  equipment,  value  as  fur- 
nished by  contractor 20,000.00 


Total $1,625,397.00 

Less  items  not  covered  by  fire  insurance 
(Labor  and  material  inclusive) 

Excavating $15,589.64 

Grading 50,401.58 

Track  Work None 

Brick  Work       1  for  founda- 

Concrete  Work  j  tions 90,000.00 

Clearing 2,300.00 

Stone 55,476.50 

Structural 15,446.62 


Contractor's    Plant $229,214.34 

Utility  Work 

Water  lines. . . .  $28,247.28 

Sewer  lines 80,178.77 

Gas  mains None 

Electric  con- 
duits . .  .  None 


Roads 

Landscape  work  $37,460.20    $145,886.25     $375,100.59 

Net    insurable    total $1,250,296.41 


CHAPTER  XIII 
CLASSIFICATION  AND  SYMBOLIZATION  OF  ACCOUNTS 

Basis  of  Account  Groups. — When  installing  a  system  of 
field  cost  accounting  the  first  thing  to  consider  is  the  depart- 
mental or  group  divisions  into  which  the  various  costs 
naturally  divide  themselves  and  this  grouping  can  best  be 
determined  by  reference  to  the  original  estimate  in  which 
costs  are  divided  into  their  natural  groups.  As  the  cumula- 
tive classified  unit  cost  record  is  based  on  the  classification 
of  the  official  estimate,  it  is  obvious  that  the  cost  account- 
ing classification  should  follow  the  same  lines,  so  that  when 
the  cost  statement  and  reports  of  progress  are  compared 
with  the  estimate,  any  difference  over  or  under  will  show  up. 
Hence  the  success  of  the  field  accounting  system  hinges  on 
making  the  classification  of  cost  identical  in  its  grouping 
with  those  of  the  main  groups  on  the  official  estimate. 
The  symbols  to  cover  them  should  show  no  variation. 
If  they  do  confusion  results  immediately. 

Main  Group  Classification. — The  main  group  should  be 
designated  by  symbols  or  numbers  in  groups  or  breaks  of 
10  as  for  example  110,  120,  130,  etc.,  allotting  new  numbers 
to  each  group  until  all  are  symbolized.  In  the  construction 
of  dwellings,  or  on  a  big  building  project,  the  main  groups 
would  include  such  classifications  of  work  as  are  listed 
below : 

GROUP  GROUP 

ACCOUNT  ACCOI-NT 

SYMBOL  TITLE  SYMBOL  TITLB 

110  Preparation  of  Site  180  Brick  Work 

120  Excavation  190  Lathing 

130  Concrete  Work  200  Plant 

140  Rough  Carpentry  210  Plastering 

150  Exterior  Millwork  220  Plumbing 

160  Interior  Millwork  230  Heating 

170  Stone  Masonry  240  Sheet  Metal  Work 
11                                             161 


162  FIELD  ACCOUNTING  CONTROL 

GROUP  GROUP 

ACCOUNT  ACCOUNT 

SYMBOL  TITLE  SYMBOL  TITLE 

250  Electrical  320  Sewer  Utilities 

260  Painting  330  Water  Utilities 

270  Roofing  340  Gas  Utilities 

280  Fences  350  Bridges  &  Culverts 

290  Landscaping  360  Sub-Contracts 

300  Cleaning  Up  370  Stores  Un-assigned 

310  Street  Utilities  380  Field  Overhead 

Labor,  Material  and  Direct  Expense  Classifications.— 
On  each  of  the  group  classifications  of  work  shown  above 
three  classes  of  construction  costs  are  incurred,  namely: 
Material,  labor,  and  direct  expense.  As  each  group  is 
divided  into  three  kinds  or  classes  of  cost,  each  class  must 
be  represented  by  the  three  successive  numbers  of  the  group 
which  would  be:  Labor,  111;  Material,  112;  and  Direct 
Expense  113.  Thus  an  invoice  or  voucher,  when  marked 
with  the  symbol  112,  would  be  charged  to  that  account 
number,  which  account  records  the  cost  of  the  material 
used  in  the  preparation  of  the  site;  account  113  would  be 
the  direct  expense  incurred  on  site  preparation,  and  so  on. 

Material,  labor,  or  expense,  however,  may  be  of  many 
different  classes.  Therefore  each  of  these  numbers,  111, 
112, 113,  etc.,  is  further  expanded  by  affixing  unit  symbols 
by  which  the  nature  of  the  material,  labor  and  direct 
expense  is  classified  as  follows: 

SYMBOL  MATERIAL  SYMBOL  MATERIAL 

.01  Lumber.  .01  Digging  General. 

.02  Underpinning.  .02  Digging  Sub-Basement. 

.03  Rings  (Steel).  .03  Sheeting  &  Bracing  banks. 

.04  Cement.  .04  Shoring  adjoining  Building. 

.05  Sand.  .05  Under  pinning. 

.06  Stone.  .06  Pumping. 

.07  Brick.  .07  Backfilling  &  Grading. 

.08  Steel  (Structural).  Direct  Expense 

.09  Steel  (Reinforcing).  .01  Liability  Insurance. 

By  referring  to  the  group  account  symbols  it  is  seen  that 
the  number  for  plant  items  is  200.  Therefore  201  would  be 


CLASSIFICATION  AND  SYMBOLIZATION  OF  ACCOUNTS   163 

labor  in  moving  plant,  202  plant  material,  203  plant  direct 
expense  with  sub-classifications  in  each  case  which  might 
be  as  follows: 

201.1  Transportation  (Equipment  Plant) 

201.2  Erection  of  Equipment. 

201.21  Labor. 
.22  Material. 

201.3  Equipment  charge  and  Credit  basis. 

201.31  Labor. 
.32  Material. 

201.4  Equipment  rental. 

201.5  Fuel,  lubricants  &  power. 

201.6  Repairs. 

General  Expense  Classification. — Overhead  Cost  is  repre- 
sented by  the  380  group  symbol  which  might  be  expanded 
to  the  sub-account  classification  as  follows: 

381  Salaries,  General  Labor  and  Expense. 

381.1  Superintendent  and  Engineers,  orj  381.11  Supt. 

.12  Engineers. 
.2  Office  Employees. 

.3  Material  Checkers  and  Timekeepers,  or|  381.13  M.C. 

.14  T.K. 

.4  Laying  out  building. 
.5  Watchman. 
.6  Water  Boys. 
.7  Toolmen. 
.8  Liability  Insurance. 
.9  Traveling  Expenses. 

382  Engineering  Expense. 

382.1  Plans  and  Engineering  Supplies. 
.2  Photographs. 
.3  Engineering  Service. 
.4  Architects  fees. 

383  Office  Expense. 

383.11  Rent. 


383.1  Rent,  Light  and  Heat,  or 


.12  Light. 


.13  Heat. 
.2  Stationery  &  Printing. 
.3  Telephone. 
.4  Telegraph. 


164  FIELD  ACCOUNTING  CONTROL 

.5  Postage  &  Expressage. 

.6  Adding  Machine  &  Typewriter  Rental. 

.7  Furniture. 

.8  Towel  Service. 

.9  Miscellaneous. 

384  Other  Field  Expenses. 

j    i-\ir  -if/-!  \  ]  384.  11  Maint. 

384.1  Bonds  (Maint.  &  Constn.)  \ 

12  Constn. 

.2  Permits  &  Licenses. 
.3  Fire  Insurance. 
.4  Burglar  Insurance. 
.5  Legal  Services. 
.6  Association  Dues. 
.7  Floor  Tests. 
.8  Ring  Tests. 
.9  Advertising. 

385  Temporary  Structures. 

385.1  Offices. 

.2  Toilets. 

.3  Toolhouse,  Storage  Sheds,  etc. 

.4  Stairs  &  Ladders. 

.5  Fences,  Sidewalks,  etc. 

.6  Platforms  &  Driveways. 

.7  Repairs  and  Protection  to  adjacent  Property. 

.8  Protection  to  Public  Utilities. 

386  Temporary  Light,  Heat  &  Power. 

386.1  Light. 
.2  Heat. 
.3  Power. 

387  General  Cleaning. 

387.1  Labor. 
.2  Trucking. 

Sub-Contract  Classifications. — Sub-Contracts  are  gov- 
erned by  the  360  group  symbol,  which  comprises  all  classes 
of  work  whether  on  the  basis  of  lump  sum,  fixed  fee,  or 
unit  price.  Sub-contracts  might  be  classified  as  follows: 

360  Sub-Contracts. 

361  Wrecking,  Excavating  &  Shoring. 

361.1  Wrecking. 
.2  Excavation. 
.3  Shoring. 


CLASSIFICATION  AND  SYMBOLIZATION  OF  ACCOUNTS   165 

362  Heating,  Plumbing  &  Wiring. 

362.1  Steam. 
.2  Plumbing. 
.3  Electric. 

363  Interior  Construction. 

364  Painting,  Paperhanging,  etc. 

365  Millwork. 

366  Roofing. 

367  Fireproof  Doors  &  Windows. 

368  Interior  Finish. 

369  Paving  Streets,  Sidewalks,  etc. 

Illustrative  Sub -account  Classification. — The  following 
sub-account  classification  illustrates  the  actual  account 
symbols  used  by  a  large  contracting  concern  in  the  field 
accounting  covering  the  erection  of  a  number  of  dwellings. 
The  main  groups  are  those  given  on  pages  161  and  162  of 
this  chapter  and  the  method  of  sub-classification  has  been 
indicated  in  preceding  pages. 

Sub-accounts  Symbol  GROUP 

ACCOUNTS 

LABOR  MATERIAL  NATURE  OP  COST  SYMBOL 

110 


120 
130 

140 

150 
160 

170 
180 


111.01 

112. 

Cleaning 

.02 

Grubbing 

.03 

Rough  Grading 

.04 

Removal  of  Buildings 

121.05 

122. 

Earth 

.06 

Rock 

131.07 

132. 

Footings 

.08 

Foundations 

.09 

Cement  Floors 

.10 

Steps 

.11 

House  Walks 

141.12 

142. 

Framing 

.13 

Erecting 

151.14 

152. 

Erecting 

161.15 

162. 

Trim 

.16 

Wood  Floors 

171.17 

172. 

Foundations 

.18 

Porch  Piers 

.19 

Stone  Walls 

181.20 

182. 

Building  Walls 

.21 

Porch  Piers 

166  FIELD  ACCOUNTING  CONTROL 

Sub-account  Symbol  GROUP 

ACCOUNTS 

LABOR  MATERIAL,  NATURE  OF  COST  SYMBOL 

190 

200 
210 


220 

230 
240 

250 
260 

270 

280 
290 

300 
310 

320 
330 


191.22 

192. 

Wood  Lath 

.23 

Metal  Lath 

201.24 

202. 

Plant 

211.25 

212. 

Brown  or  Scratch 

Coat 

.26 

White  or  Finish  Coat 

.27 

Patching 

221.28 

222. 

Roughing 

.29 

Finish  or  Setting  Fixtures 

.30 

House  Connection 

231.31 

232. 

Roughing 

.32 

Fixtures 

241.33 

242. 

Cornices 

.34 

Flashings 

.35 

Gutters 

.36 

Ventilators 

251.37 

252. 

Wiring 

.38 

Setting  Fixtures 

261.39 

262. 

Exterior 

.40 

Interior 

.41 

Decorating 

271.42 

272. 

Tin 

.43 

Slate 

.44 

Slag 

.45 

Prepared 

281.46 

292. 

Wood 

.47 

Iron 

291.48 

292. 

Finish  Grading 

.49 

Planting 

301.50 

302. 

Cleaning  Up 

311.51 

312. 

Excavation 

.52 

Paving 

.53 

Concrete  Curb  and  Gutter 

.54 

Public  Side  Walks 

321.55 

322. 

Excavation 

.56 

Shoring 

.57 

Laying  Pipe 

.58 

Back  Fill 

331.59 

332. 

Excavation 

.60 

Shoring 

.61 

Laying  Pipe 

.62 

Back  Fill 

CLASSIFICATION  AND  SYMBOLIZATION  OF  ACCOUNTS   107 

Sub-accounts  Symbol  GROUP 

ACCOUNTS 

LABOR  MATERIAL  NATURE  OF  COST  SYMBOL 

341.63      342.  Excavation  340 

.64  Laying  Pipe 

.65  Back  Fill 

351.66      352.  Excavation  350 

.67  Forms 

.68  Concrete 

.69  Stone  Work 

361.9  Sub-Contractors  360 

370.01  Cement  370 

.02  Lime 

.03  Brick 

.04  Plaster 

.05  Slag 

.06  Sand 

.07  Gravel 

.08  Rough  Hardware 

.09  Finish  Hardware 

.10  Reinforcing  Steel 

.11  Lintels,  Anchors,  etc. 

.  1  '2  Fences 

.13  Rough  Lumber 

.14  Lath 

.15  Millwork 

.16  Flue  Linings 

.17  Wire 

.18  Electric  Fixtures 

.19  Plumbing  Fixtures 

.20  Gas  Fixtures 

.21  Hot  Air  Fixtures 

.22  Steam  Fixtures 

.23  Roofing  Paper 

.24  Roofing  Slate 

.25  Roofing  Tar 

.26  Roofing  Tin 

.27  Paints 

.28  Oils 

370.29  Colors  370 

.30  Kalsomine 

.31  Wall  Paper 
etc. 


168  FIELD  ACCOUNTING  CONTROL 

The  sub-account  symbols  for  the  360  and  380  groups 
sub-contracts  and  (Field  Overhead)  have  already  been 
presented  and  need  not  be  repeated. 

In  the  study  of  the  foregoing  account  symbols  it  will  be 
noted  that  the  labor  classification  symbols  run  from  .01 
to  .69.  When  these  numbers  are  affixed  after  the  point 
following  the  group  symbols,  this  gives  the  sub-account 
symbol  number.  The  numbers  can  run  higher  than  69 
if  the  classification  calls  for  it.  When  laying  out  and 
numbering  the  classification  of  each  group  it  is  well  to 
provide  extra  numbers  to  cover  any  unforeseen  classifica- 
tion which  may  not  have  been  determined  in  the  first 
layout.  The  numbers  will  then  retain  their  sequence, 
thereby  preventing  confusion. 

The  classification  of  material  is  covered  by  the  370  group 
from  .01  to  .31,  and  can  also  be  carried  to  a  higher  number 
if  the  classification  calls  for  it.  The  370  group  should  be 
charged  for  all  the  material  that  cannot  be  assigned  to  a 
specific  feature  of  the  work  direct  from  the  invoice.  The 
accounts  in  this  group  constitute  the  material  inventory. 
The  charges  to  them  should  consist  of  the  cost  of  the 
material  plus  freight  in  and  the  labor  cost  of  handling. 
The  total  value  showing  each  month  should  be  divided  by 
the  total  units  on  hand  to  give  an  average  price  per  unit. 
Such  material  as  brick,  lime,  sand,  slag,  cement,  lumber, 
etc.,  should  be  delivered  to  the  work  on  store  room  order, 
showing  the  total  units  and  the  symbol  of  the  sub-account 
to  be  charged.  These  store  room  orders  should  be  analyzed 
at  the  end  of  each  month  according  to  the  nature  of  the 
material  and  their  quantities,  and  valued  according  to  the 
average  price  per  unit  as  determined  at  the  end  of  each 
month  by  the  accounts  of  the  370  group.  Then  a  journal 
entry  should  be  made  charging  each  sub-account  for  cost, 
and  crediting  the  370  group  accounts  for  the  transfer  from 
the  latter  accounts  to  the  former. 

If  material  is  charged  to  a  specific  cost  direct  from  the 
vendor's  invoice,  and  it  is  found  that  the  quantity  delivered 


CLASSIFICATION  AND  SYMBOLIZATION  OF  ACCOUNTS   169 

exceeds  that  required,  a  transfer  ticket  should  be  made  for 
the  surplus  material,  charging  Store  Room  and  crediting 
the  feature  of  cost  which  has  been  charged  direct  from  the 
vendor's  invoice. 

There  is  no  limit  to  the  extent  this  decimal  symbol  method 
of  classification  can  be  expanded,  and  at  the  same  time  it 
never  confuses  or  loses  its  efficiency  of  directness,  as  it 
retains  at  all  times  its  sequence  in  numerical  order. 


CHAPTER  XIV 
FIELD  ACCOUNTING  RECORDS 

Main  Records. — As  explained,  field  accounting  is  usually 
conducted  under  the  control  of  the  owner  so  far  as  concerns 
the  payment  of  expenditures  in  fulfillment  of  the  contractual 
agreement  but  the  actual  accounting  cost  work  is  performed 
by  the  field  force  of  the  contractor.  On  a  construction  job 
of  any  magnitude,  when  for  control  purposes  it  is  necessary 
to  distribute  invoices,  materials,  and  payrolls  to  a  detailed 
cost  account  classification  devised  on  the  lines  explained  in 
the  preceding  chapter,  four  main  books  of  record  are 
required ;  and  auxiliary  to  these  main  books  are  a  number  of 
forms  and  distribution  sheets  such  as  journal  entry  blanks, 
payroll  sheets,  storeroom  orders,  field  orders,  and  so  on. 

Although  the  four  main  books  differ  in  form  and  title 
with  varying  conditions  as  to  size  and  complexity  of  the 
contract  work,  their  general  purpose  is  indicated  by  the 
following  descriptive  names: 

1.  Combined  Cash  and  Ledger  Control  Journal. 

2.  Invoice  and  Payroll  Register. 

3.  Construction  Cost  Record. 

4.  Accounts  Payable  Ledger. 

The  first  record  collects  the  total  amount  of  invoices  and 
payrolls  to  be  charged  to  Construction  Cost  and  credited  to 
Accounts  Payable;  the  second  record  shows  the  distribution 
of  the  daily  construction  cost  to  the  main  group  accounts; 
the  third  record  shows  the  distribution  of  each  main  group 
to  the  sub-accounts  within  this  group ;  and  the  fourth  record 
is  an  ordinary  Accounts  Payable  Ledger.  It  will  thus  be 
seen  that  record  No.  1  controls  No.  2,  and  record  No.  2 
controls  No.  3,  while  record  No.  4  contains  the  detail  of 

170 


FIELD  ACCOrXTIXG  RECORDS  171 

the  invoices  charged  in  the  first  three  records  to  (1)  the 
main  control  accounts,  (2)  the  group  control  accounts  and 
(3)  the  detailed  cost  accounts. 

Cash  and  Ledger  Control  Journal. — This  combination 
record,  as  illustrated  in  Form  19,  is  used  for  the  purpose  of 
showing  all  cash  received,  whether  from  the  owner  in  settle- 
ment of  construction  costs,  or  as  an  advance  from  the 
contractor  for  the  purpose  of  financing  the  work  until  paid 
for  by  the  owner;  (2)  all  cash  paid  under  approved  invoice, 
or  payroll  vouchers;  and  (3)  the  total  amount  of  the  Accounts 
Payable  liability  incurred  to  date.  Each  entry  constitutes 
a  journal  entry  debiting  and  crediting  (1)  Cash  for  the 
amounts  received  and  paid,  (2)  debiting  Construction  Cost 
with  the  expenditures  incurred  and  crediting  it  with  any 
deductions  from  these  expenditures,  and  (3)  debiting  and 
crediting  Accounts  Payable  in  total  with  the  invoices  paid 
and  the  liabilities  incurred.  In  addition  two  columns  are 
provided  in  which  the  Construction  Company's  account  is 
charged  with  the  payments  made  by  the  owner  who  is  credited 
therefore.  Another  column  shows  the  total  advances  from 
the  general  office  to  date  (the  offsetting  credits  to  the 
advances  made  by  the  contractor)  and  a  final  column  shows 
the  reimbursement  by  the  owner  to  the  contractor's  general 
office.  With  this  preparatory  explanation  the  study  of  the 
illustrative  entries  shown  on  page  172  should  now  be  self- 
explanatory. 

In  the  study  of  Form  19  it  should  be  noted  that  the  record 
is  ruled  off  and  the  balances  are  brought  forward  after  a 
statement  is  sent  to  the  owner  showing  the  amounts  dis- 
bursed to  date.  A  statement  may  be  rendered  weekly, 
monthly  or  as  circumstances  require.  In  the  illustrative 
figures  10  per  cent  is  added  to  the  total  to  be  reimbursed, 
this  percentage  representing  the  contractor's  fee. 

Invoice  and  Payroll  Register. — The  Invoice  and  Payroll 
Register  (Form  20)  shown  with  illustrative  entries  on  pages 
174  and  1 75  is  the  book  of  first  record  for  invoices  and  payrolls. 
When  an  invoice  or  payroll  has  been  approved  for  payment, 


172  FIELD  ACCOUNTING  CONTROL 

Record  Number  1 

Job 


Date 

J.  E.  A 

Voucher 

Check 

Name 

Ca 

sh 

Dr. 

Cr. 

1  1   19 

Contractor  

$5000000 

27 

J  E   1 

27 

1 

1 

T.  Jones  &  Co  

$      442  50 

27 

2 

2 

H.  Harris  &  Bro       

200  00 

27 

3 

3 

J.  Williams  Co                           .  • 

350  00 

27 

4 

4 

Patterson  Bros  

472.00 

27 

5 

5 

600  00 

27 

6 

6 

25000 

27 

7 

7 

Payroll  

3,500.00 

27 

g 

g 

J.  Ostrander  &  Son  

27000 

27 

9 

9 

L   K   Comstock  &  Co        

96  00 

27 

10 

10 

400  00 

27 

1 

1 

C.  S.  Wilson  &  Co  

275.00 

27 

2 

2 

Tatham  &  Co 

75000 

27 

3 

3 

Osgood  Jones  &  Co  

275.00 

27 

4 

4 

Booth  Bros.  Co  

500.00 

27 

5 

5 

Tower  &  Co                               

25000 

27 

6 

6 

17500 

27 

7 

7 

J.  H.  Richards  &  Bro  

9000 

27 

g 

g 

Gilbert  Wilson  Co                           

27600 

27 

9 

9 

Payroll  

4,000.00 

27 

20 

20 

C.  Lynch  &  Bro  

150.00 

27 

1 

1 

E   Ellinger  &  Son     

175  00 

27 

2 

2 

203  00 

27 

3 

3 

J.  A.  Anderson  

176.00 

27 

4 

4 

W   &  J   Goodwin       ...            .        ... 

90.00 

27 

5 

5 

W  L  Secor  &  Co 

70000 

2  5 

Owner  

5 

6 

Contractor  

14,665.50 

6 

Balance  

50,000.00 

$64,665.50 

$64,665.50 

6 

Balance  

$50,000.00 

10 

26 

26 

R.  L.  I.i  n  >m  i.-  &  Bro  

$        46.00 

10 

7 

7 

Payroll  ... 

4,250.00 

10 

g 

8 

Passaic  Lumber  Co  

6,000.00 

10 

9 

9 

N.  J.  Lumber  Supply  Co  

1,400.00 

10 

30 

30 

T.  Watson  &  Co          

790.00 

10 

1 

1 

Wm  Lloyd  &  Son                       ... 

93.00 

10 

2 

2 

Northern  Lumber  Co  

104.00 

10 

3 

3 

W.  J.  Anderson  &  Co  

110.00 

10 

4 

4 

Payroll  

4,500.00 

15 

Owner  

15 

Forwarded  

16 

17,293.00 

16 

Balance  

50,000.00 

$67,293.00 

$67,293.00 

16 

$50,000.00 

FORM  19. — Cash  and 


FIELD  ACCOUNTING  RECORDS  173 

Sheet  Number  1 
Job 


Construction  Cost             Accounts  Payable 

Com- 
pany 
Ac- 
count 

Advance 
from 
Gen. 
Office 

Reimbursement 

Gen.  Office 

Owner 

Dr. 

Cr. 

Dr. 

Cr. 

Dr. 

Cr. 

Dr. 

Cr. 

$31,966.00 

$         7.50 

31.958.50 

$          7.50 

14,665.50 
17.293.00 

$31,966.00 

$50.000.00 
14,665.50 

$16.132.05 
19,022.30 

$16.132.05 
19.022.30 

$31,958.50 

31.958.50 

$17,293.00 

$17,293.00 

$64,665.50 
17,293.00 

$31,958.50 

$81,958.50 

$35.154.35 

$35.154.35 

Ledger  Control  Record. 


174 


FIELD  ACCOUNTING  CONTROL 


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FIELD  ACCOUNTING  RECORDS 


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N.  J.  Lumber  Supply 
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L.  L.  Watson  A  Co.  . 
Wm.  Lloyd  A  Son... 

Northern  Lumber  Co 
W.  J.  Anderson  A  Co 
Payroll  
T.  Jones  A  Co  

T.  Jones  A  Co  
J.  Williams  A  Co  
Tower  Co  
Payroll  
L.  K.  Comstock  A  Co 
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Forward  

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176  FIELD  ACCOUNTING  CONTROL 

it  is  given  its  consecutive  number  and  entered  on  the  register, 
after  which  it  is  posted  to  the  credit  of  the  vendor  in  the 
Accounts  Payable  Ledger  and  to  the  detail  cost  account  in 
the  Construction  Cost  Record  (No.  3  book).  The  totals 
accumulated  in  the  Invoice  Register  are  posted,  in  total  and 
singly,  in  the  Cash  and  Ledger  Record  (No.  1)  when  a  state- 
ment is  sent  to  the  owner.  The  distribution  columns  of 
the  register  are  headed  with  the  names  and  numbers  of  the 
group  accounts  covering  the  allocation  of  costs. 

Construction  Cost  Record. — The  Construction  Cost  Record 
illustrated  in  Form  21,  differs  from  the  Invoice  and 
Payroll  Register  in  that  its  distribution  columns  provide 
for  showing  quantities  when  necessary  as  well  as  values. 
One  sheet  is  allotted  to  each  group  of  accounts  and  as  many 
distribution  columns  are  provided  as  there  are  sub-accounts 
in  the  account  classification.  To  insure  the  correctness  of 
the  distribution,  invoices  and  payrolls  before  entry  are  sent 
to  the  field  auditor  who,  with  his  account  classification  before 
him,  enters  on  the  original  record  the  number  of  the  account 
to  be  charged.  The  totals  of  the  Construction  Cost  Record 
columns  are  carried  forward  from  one  sheet  to  another,  thus 
furnishing  a  complete  record  of  the  detailed  cost  of  the  con- 
struction work  until  its  completion.  At  the  back  of  either 
the  Construction  Cost  Record  or  the  Accounts  Payable 
Ledger  and  in  a  separate  section  are  kept  any  suspense  or 
deferred  asset  accounts  for  materials  and  supplies  purchased 
in  advance  of  immediate  requirements.  These  accounts 
are  operated  in  the  usual  way  and  require  no  comment. 

Accounts  Payable  Ledger. — The  Accounts  Payable 
Ledger,  as  already  stated,  is  an  ordinary  loose  leaf  debit 
and  credit  account  ruled  ledger.  The  accounts  are  arranged 
in  the  alphabetical  order  of  vendor's  names  and  the  postings 
are  made  direct  from  the  invoices  after  they  "have  been 
registered  and  vouchered  for  payment.  Any  entries  to 
negative  the  credit  entries  are  vouchered  by  means  of  memos 
received  from  the  auditor.  When  invoices  are  paid  and 
the  vendor  accounts  are  debited,  cash  is  credited  on  the 


177 


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3     = 
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8 

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$175.00 

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178  FIELD  ACCOUNTING  CONTROL 

Cash  Ledger  Record.  To  preserve  the  control  agreement 
between  the  two  records  an  account  is  opened  in  the  ledger 
to  record  payroll  disbursements.  If  all  the  postings  are 
up  to  date  the  total  balance  on  the  Accounts  Payable  Ledger 
should  be  in  agreement  with  the  balance  of  the  Accounts 
Payable  column  on  the  Cash  Ledger  Record. 

Checks  in  payment  of  invoices  and  payroll  are  made  out 
in  sets  of  four  at  the  construction  office,  and  it  is  a  good 
plan  to  have  the  owner's  representative  countersign  each 
set.  The  check  which  is  the  original  voucher,  goes  to  the 
vendor,  the  duplicate  is  for  the  contractor's  records  at  his 
general  office,  the  triplicate  is  kept  as  a  job  record  in  the 
field,  and  the  quadruplicate  is  the  "Owners  Copy"  which  is 
forwarded  to  the  vendor  with  the  original,  to  be  receipted 
by  him,  and  returned  to  the  contractor,  to  be  attached  to 
the  statement  sent  to  the  owner. 

Simplification  of  System. — The  operation  of  the  four 
records  just  described  is  all  the  bookkeeping  required  so  far 
as  concerns  the  main  records  kept  on  a  big  construction 
job.  On  a  job  of  smaller  size  the  books  of  account  can  be 
further  simplified  by  dispensing  with  the  combination  Cash 
and  Ledger  Record  and  by  keeping  the  cash  account  in  a 
separate  Cash  Journal  with  the  necessary  distribution 
columns.  As  a  further  simplification  the  headings  of  the 
distribution  columns  in  the  Invoice  and  Payroll  Register 
may  be  entitled  "Construction  Costs"  "Overhead"  and 
"Inventory"  with  each  classification  divided  into  "Labor" 
and  "Material."  Thus  all  invoices  and  payrolls  would  be 
charged  to  this  one  record  and  credited  to  Payroll  or  Vendors' 
accounts  in  an  Accounts  Payable  Ledger. 

If  any  further  distribution  of  invoices  and  payrolls  to  sub- 
accounts  is  required,  this  may  be  made  on  a  distribution 
sheet  ruled  with  as  many  columns  as  there  are  sub-accounts 
to  be  debited  and  credited.  The  operation  of  all  such 
distribution  records  is  the  same  in  principle  and  therefore 
the  headings  and  rulings,  which  will  vary  more  or  less  with 
each  construction  contract,  need  not  be  described. 


FIELD  ACCOUNTING  RECORDS 


179 


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180  FIELD  ACCOUNTING  CONTROL 

The  system  of  keeping  cost  on  the  field  as  here  outlined 
can  be  adapted  to  any  class  of  contract  work.  If  it  should 
be  a  housing  project,  where  different  groups  are  of  varying 
styles  and  dimensions,  the  records  can  be  segregated  accord- 
ingly, and,  assembled  on  another  statement  to  exhibit  the 
costs  as  a  whole. 


CHAPTER  XV 
HANDLING  FIELD  PAPERS 

Field  Accounting  Forms. — In  the  operation  of  a  system 
of  cost  accounting  for  a  manufacturing  plant,  a  number  of 
forms  and  auxiliary  records  are  required  to  keep  track 
of  time  and  pay,  the  ordering  of  material,  its  receipt  and 
checking,  materials  withdrawn  from  and  returned  to  stores, 
and  so  on.  In  addition  a  more  or  less  complicated  system  of 
expense  distribution  is  necessary  for  the  allocation  of  the 
factory  overhead  to  departments  and  product.  Construc- 
tion costs  are  simplified  by  the  fact  that  the  contract  or  job 
is  the  final  product,  and  as  this  product  can  readily  be  dis- 
tinguished from  every  other  product,  almost  every  charge  to 
it  becomes  a  direct  charge.  In  addition  the  laborers  and 
skilled  workmen  engaged  in  the  job  are  all  more  or  less 
specialists  in  their  line  and  the  mere  designation  of  the  kind 
of  work  a  man  is  engaged  to  perform  is  often  sufficient  to 
indicate  the  account  group  to  which  his  wages  are  to  be 
allocated.  For  these  reasons  the  number  of  forms  and  auxili- 
ary records  required  to  keep  track  of  the  distribution  of 
the  labor  and  material  charges  are  relatively  few  in  number, 
and  the  few  forms  that  are  used  serve  mainly  administra- 
tive ends  and  form  no  part  of  the  accounting  records.  On  a 
large  contract  a  score  of  forms  at  the  outside  would  fill 
accounting  and  administrative  needs  and  would  comprise 
the  following: 

1.  History  Card. 

2.  Employment  Card. 

3.  Change  of  Rate  Slip. 

4.  Discharge  Check. 

5.  Payroll  Sheets. 

6.  Field  Checkers  List. 

181 


182  FIELD  ACCOUNTING  CONTROL 

7.  Timekeepers  Daily  Distribution. 

8.  Timekeepers  Weekly  Distribution. 

9.  Pay  Envelopes. 

10.  Badge  Number. 

11.  Daily  In  and  Out  Sheet. 

12.  Field  Orders. 

13.  Receiving  Tickets. 

14.  Debit  Memos. 

15.  Credit  Memos. 

16.  Journal  Entry  Blanks. 

17.  Store  Room  Ledger. 

18.  Store  Room  Orders. 

19.  Remittance  Voucher. 

20.  Foremen's  Daily  Report. 


In  the  discussion  to  follow  only  the  handling  will  be 
taken  up  of  those  forms  that  bear  upon  the  accounting 
control. 

Field  Orders. — All  orders  issued  for  material  bear  the 
numbers  of  the  job  and  of  the  order  in  consecutive  order 
as  follows,  Job  275-1,  275-2,  beginning  with  No.  1.  The 
orders  are  made  in  sets  of  three  the  original  for  the  vendor, 
the  duplicate  for  the  field  accounting  office,  and  the 
triplicate  for  the  works  superintendent.  The  duplicate  is 
filed  alphabetically  until  invoices  covering  its  items  are 
rendered;  it  is  then  withdrawn  and  filed  in  numerical  order 
when  complete.  The  triplicate  copy  is  filed  in  the  alphabe- 
tical order  of  vendors  names. 

Invoices  for  Material  and  Expense. — Invoices  from  ven- 
dors should  be  rendered  in  original  and  duplicate,  having 
the  job  number  and  order  number  affixed.  The  two 
invoices  are  retained  in  the  field  office,  filed  in  the  alpha- 
betical order  of  the  vendor's  name,  awaiting  the  checking 
of  quantities  and  price,  after  which  the  account  symbol  is 
affixed  to  show  the  account  to  be  charged.  The  routine 
is  completed  by  numbering  the  invoices  for  entry  on  the 
Invoice  and  Payroll  Register.  The  original  is  then  sent 
to  the  auditor  for  liquidation,  and  the  duplicate  is  posted 


II A  \DU.\f;  FIELD  PAPERS 


is:? 


to  the  account  to  be  charged  on  the  Construction  Cost 
Record  as  shown  by  its  symbol. 

Discounts  for  prompt  payment  and  any  deductions  for 
freight  or  shortage  are  made  in  red  figures  and  a  debit 
memo  is  rendered  the  vendor  showing  the  composition 
of  the  amount  deducted.  A  copy  of  this  memo  is  attached 
to  the  duplicate  invoice  on  file  as  a  matter  of  record.  Any 
credit  memos  issued  to  vendors,  to  adjust  deductions  over 


PKOJ. 


SUB-CONTRACTOR 


i.iKDt.l: 
^»0 

DATE                          FOR 

ADDITIONS 

DEDICTIONS 

T'    I  \L  TO    I.  Alt 

\ 

•  -*                    •  —  •  •  —  •  

•» 

FORM  23. — Front. 


NO 

DATE 

cti.y 

TO 

KACT 
5ATE 

PA  V  ME  MS 

BALANCE 

IT 

FORM  23. — Back. 

delivery  or  errors  of  various  kinds,  are  treated  as  invoices, 
thereby  increasing  the  original  cost  entered. 

The  two  sets  of  invoices  are  assorted  alphabetically  and 
in  the  order  of  the  payee's  names,  as  a  voucher  at  times 
covers  several  invoices  from  one  vendor.  After  this  they 
are  arranged  in  two  lots,  original  and  duplicate,  and  each 


184 


FIELD  ACCOUNTING  CONTROL 


is  covered  by  an  original  and  duplicate  voucher  which  is 
typed  to  show  the  number  of  the  invoice,  the  name  of  the 
vendor,  and  the  amount  paid.  They  are  numbered 
consecutively  and  also  entered  on  a  "pay  list"  the  purpose 


DEBIT  MEMO 


_Thit  memorandum  refers  to  work  at. 


WE    C66IT  TOUR  ACCOUNT   AS    fCLLOWS: 

.  



Prepared  by— 
Approved  by. 


.  Credit 

-Charged  on  our  invoice  No. 


FORM  24.— Debit  Memo. 


Made  by 

decked  by_ 


Dratnny  Ifoi, 


BILL  OF  MATERIAL  No 

SHEETS  SHEET  NO._ 


FORM  25. — Bill  of  Material. 


of  which  is  indicated  by  its  name.  After  both  the  pay  list 
and  vouchers  have  been  certified  they  are  turned  over 
to  the  disbursing  agent,  the  original  to  be  covered  by  the 
checks  of  the  owner,  and  the  duplicate  to  be  filed. 


HANDLING  FIELD  PAPERS 


1S5 


THIS    18    NOT    AN    ORDER 

General  Contracting  Corporation 

191 

QUOTATION 
TO  

LOC; 
PRO. 

V 

ITION  

IECT  No. 

PLEASE  ENTER  HEREON  YOUR  QUOTATIO 

THE  FOLLOWING-DESCRIBED  ARTICLES 
1.  SHOULD  YOU  BE  UNABLE  TO  FURNISH  SAME  ACC 
WISH  TO  OFFER  A  SUBSTITUTE,   PLEASE  ADVlq 
RIGHT  TO  ACCEPT  ALL  OR  PART  OF  YOUR  BID. 
2.  ALL  MATERIAL  FURNISHED  MUST  CONFORM  TO 
ACCORDANCE  THEREWITH,  SAME  WILL  BE  HELI 
TION.     SHIPPER  MUST  PAY  ALL  TRANSPORTAT 
REJECTED  MATERIAL. 
3.  THIS  INQUIRY  IS  SENT  TO  YOU  AND  MUST  BE  PRO 

TO  US. 
4.     NO   CHARGES  ALLOWED    FOB   PACKING,    REELS,    OI 
YOUR  QUOTATION. 

.r>.  QUOTATIONS  MUST  BE  IN  OUR  HANDS 

ORDINQ    TO    OUR    DESCRIPTION    AND 
B    IN    DETAIL.       WE    RESERVE    THE 

OUR  SPECIFICATIONS;   IF  NOT  IN 
>  AT  TOUR  RISK  AWAITING  DI8PO8I- 
ON  CHARGES  BOTH  WAYS  ON  ALL 

PERLY  FILLED  OUT  AND  RETURNED 
I  CARTAGE  UNLESS  SPECIFIED  ON 
BY  191 

VERY  TRULY  YOURS, 

Item 

Quantity 

Article  and  description 

List  price 

Discount 

Net  price 

Total  Net  Price 

TO 
WE  QUOTE  YOU  AS  ABOVE.     SHIPMENT  \ 
DAYS  FROM  RECEIPT 

eiLL  BE  M 
OF  ORDE 
ED  

ADE  

R. 

DATE  191                    SIGN 

FORM  26. 


186  FIELD  ACCOUNTING  CONTROL 

PURCHASE 
ORDER 


,191        No.. 

To... 


Please  furnish with  the  articles  named  below. 

Ship  to 

Origin 


FORM  27. 


HANDLING  FIELD  PAPERS  187 

Store  Room  Orders. — Store  room  orders  for  withdrawals 
from  stock  of  materials  or  supplies  which  cannot  be  charged 
to  cost  direct  are  issued  by  foremen  in  sets  of  three.  The 
original  is  sent  to  the  storekeeper,  the  duplicate  is  priced 
and  sent  to  the  field  accounting  office,  and  the  triplicate 
is  retained  by  the  foreman.  The  orders  that  go  to  the 
accounting  office  are  allowed  to  accumulate  and  are  analyzed 
at  the  end  of  the  month  for  the  amount  to  be  charged  and 
credited  for  each  period.  This  analysis  is  framed  into  a 

CAR  CARD  RECORD 
CAB  OB  DEE  JOB  ITEMS 

VEJJDOB  AXD  SHIFPEB SHIPPED 


SHIPPEB. 


BOUTLSG- 


FORM  28. 

journal  entry  charging  cost  and  crediting  the  inventory 
accounts,  and  is  entered  on  the  Invoice  and  Payroll- 
Register  as  a  transfer.  The  details  which  go  to  make  up  these 
totals  are  posted  to  the  various  cost  accounts  on  the  Con- 
struction Cost  Record  according  to  the  symbols  shown. 
As  previously  explained,  it  is  well  to  have  these  orders 
printed  and  numbered  in  pads  of  100,  and  issued  to  the 
foreman  a  pad  at  a  time,  his  receipt  for  them  being  secured 
upon  delivery.  All  orders  issued,  cancelled,  or  not  used 
should  be  turned  into  the  accounting  office,  as  by  that  rule 
there  can  be  no  leakages  from  missing  orders. 

Timekeepers  and  Payroll  Records. — The  first  operation 
each  morning,  at  the  start  of  a  shift,  is  to  "check  in." 
There  are  various  methods  employed.  The  standard  time 


188  FIELD  ACCOUNTING  CONTROL 


GENERAL  CONTRACTING  CORPORATION 


CERTIFICATE  OF  INSPECTION 

House  No. 

Dated, 191fl. 

Block  No. 


Project  No. 
At.. 


Street  No. 


The  undersigned  committee,  representing  the  Construction  Division 
and  the  Operating  Division  of  the  General  Contracting  Corporation 
and  contractor,  and  acting  by  virtue  of  an  appointment  by  the  chiefs 
of  the  respective  divisions  mentioned,  hereby  certify  that  the  house 
referred  to  above  has,  except  as  otherwise  hereon  noted,  been  com- 
pleted in  accordance  with  plans  and  specifications,  including  all 
changes  therein  authorized  by  the  General  Contracting  Corporation, 
and  in  compliance  with  the  terms  of  the  contract. 


Work's  Superintendent 

Architect's  Representative 

Town  Manager 


Contractor's  Representative 

N.B.     Any  work  found  incomplete  or  not  in  accordance  with  the  con- 
tract is  to  be  noted  hereon. 


FORM  29. 


II A \DLI\G  FIELD  PAPERS 


189 


... 


- 
O 


•    = 


3     "I 


190  FIELD  ACCOUNTING  CONTROL 

clock,  which  prints  the  time  on  the  cards  in  black  ink  if 
early  and  in  red  if  late,  while  very  exact,  is  slow  in  opera- 
tion as  each  man  in  the  line  has  to  insert  his  own  card  in 
the  clock  and  hand  it  back  to  the  timekeeper  who  reassigns 
it  to  the  employee's  number  in  the  card  rack.  As  one  clock 
is  capable  of  handling  only  about  300  men  in  15  minutes, 
and  as  the  cards  must  be  kept  in  the  time  office  until  the 
end  of  the  week,  whereas  the  payroll  should  be  made  up 
daily,  the  time  clock  method  is  not  to  be  recommended. 

The  most  rapid  and  effective  plan  of  time  recording  is  to 
check  off  the  workmen's  numbers  on  a  " Daily  Time  Sheet" 
ruled  with  10  columns,  100  lines  to  a  column  and  each 
column  divided  into  three  spaces  for  "Workman's  Number" 
"Time  in"  and  "Time  out."  As  the  men  come  to  work 
they  hand  their  checks  to  the  timekeeper,  the  timekeeper 
calls  out  the  number  to  a  clerk  in  the  office,  and  the  clerk 
makes  a  check  mark  in  the  space  for  "Time  in"  against 
the  number,  if  a  man  begins  work  at  the  regular  time. 
Irregular  hours  for  beginning  or  quitting  are  marked  in 
figures.  As  an  aid  to  the  clerk  in  finding  the  space  allotted 
to  each  number,  every  tenth  line  is  ruled  heavily.  Hence 
it  is  the  work  of  a  second  to  find  the  space  on  the  sheet 
allotted  to  a  particular  number  and  check  marks  can  be 
made  almost  as  quickly  as  numbers  are  called  out.  As  the 
men  quit  work  the  checks  can  be  collected  and  marked  off 
on  the  sheet  at  leisure.  A  sheet  18  by  10  in.  will  accommodate 
1000  names,  arid  while  it  covers  all  the  requirements  of  the 
time  cards,  it  is  more  efficient  and  economical  in  operation. 
A  mistake  in  checking  the  wrong  number  is  provided  for  in 
two  ways:  First,  if  one  number  is  wrongly  checked  two 
checks  marks  are  likely  to  be  made  against  it  and  the  proper 
number  left  unchecked;  secondly  the  accuracy  of  the  daily 
time  sheet  is  insured  by  a  system  of  field  checking  while 
the  men  are  at  work. 

This  Form  follows: 


HANDLING  FIELD  PAPERS 


191 


DAILY  TIME  CHECKING  SHEET 
Month  4— Day  20— Year  1920 


Hundreds 

1 

2 

3 

4 

Employees 
No. 

A.M. 
In 

P.M. 
Out 

No. 

In 

Out 

No. 

In 

Out 

No. 

In 

Out 

No. 

In 

Out 

0 

I/ 

0 

0 

0 

1 

V 

V 

1 

V 

IX 

1 

' 

1 

1 

2 

IX 

V 

2 

IX 

I/ 

2 

2 

2 

3 

IX 

V 

3 

I/ 

I/ 

3 

3 

3 

4 

IX 

IX 

4 

11 

9.10 

4 

4 

4 

5 

V 

V 

5 

IX 

ix 

5 

5 

5 

6 

6 

V 

IX 

6 

6 

6 

7 

V 

V 

7 

V 

IX 

7 

7 

7 

8 

IX 

IX 

8 

IX 

IX 

8 

8 

8 

9 

9 

I/ 

IX 

9 

9 

9 

10 

IX 

V 

10 

K 

k- 

10 

10 

10 

1 

10 

ix 

1 

V 

IX 

1 

1 

1 

2 

V 

IX 

2 

tx 

ix 

2 

2 

2 

3 

V 

3.15 

3 

I/ 

IX 

3 

3 

3 

4 

V 

IX 

4 

9.30 

10.30 

4 

4 

4 

5 

9.10 

IX 

5 

5 

5 

5 

6 

IX 

IX 

6 

6 

6 

6 

7 

V 

10.30 

7 

7 

7 

7 

8 

IX 

tx 

a 

8 

8 

8 

9 

V 

IX 

9 

9 

9 

9 

20 

20 

20 

20 

20 

1 

ix 

V 

1 

1 

1 

1 

2 

ix 

V 

2 

2 

2 

2 

To 

To 

To 

To 

To 

99 

99 

99 

99 

99 

Verification  of  Time  Records. — Every  big  construction 
job  has  several  time  checking  booths,  each  of  which  under 
the  system  as  outlined  above  can  take  care  of  from  600  to 
800  men.  Obviously,  they  should  be  located  in  the  place 
nearest  to  the  work  on  which  the  groups  of  men  are  engaged. 

As  a  check  on  the  accuracy  of  the  first  record  after  the 
men  check  in  each  morning  a  list  is  given  to  the  field 
checker  which  is  ruled  with  columns  headed: 


"Acct.        Symbol,"        "Badge 
"Rate,"          "Amount," 


No." 
"A.M." 


"Hours," 
"P.M." 


192 


FIELD  ACCOUNTING  CONTROL 


The  numbers  are  entered  on  this  list  from  the  checking 
sheet  and  the  checker  then  proceeds  to  locate  the  men  at 


PAY  CHECK  No. 

RECEIVED  IN  FULL 
WEEK  ENDING 


$ 

ALL  WAGES  FOR 


SIGNED 


WITNESS 


HIS 


MARK 


THIS  PAY  SLIP  IS  NOT  TRANSFERABLE 


TOOLS 

OK. 

BADGE 

OK. 

Form  No.  S  8066 

WORKMAN'S 
NUMBER 


CONTRACTOR 


NAME 


WEEK  ENDING 


TOTAL 

MRS. 

AMOUNT 

TOTAL  HOURS 

RATE 

AMOUNT  DUE 

CHECKED  BY 

FORM  32. 


work;  he  must  see  them  on  the  job.  If  a  man  cannot  be 
found  he  must  have  the  foreman  account  for  his  absence  or 
transfer.  After  checking  the  men  he  gets  the  account 
symbol  for  the  daily  distribution  from  the  foreman  at  the 


HANDLING  FIELD  PAPERS 


193 


end  of  the  shift.     These  lists  are  extended  for  the  services 
rendered  at  their  daily  rates. 

The  next  morning  these  extensions  are  compared  with  the 
time  as  shown  on  the  daily  in  and  out  sheet,  and  if  found  in 
agreement,  they  are  distributed  on  "Daily  Payroll  Analysis" 
to  their  respective  symbols;  the  totals  as  shown  on  the 

EMPLOYEE'S    HISTOKY    CAKD 


Aft 

Nationality 

Present  nd<irc>« 

M-rr.,,,1 

Born   lit 

Father'* 

Position                                   Bate 

Hirfd 

Left 

Transportation- 
Ed!]  ark  i 


FORM  33. 


DAILY  EMPLOYMENT  REPORT 
Location- 


POSITION 

Number 

Number 
U«0uut4 

Numbtr 
transler'd 

Number 
nrw  m«n 

BEMARK8 

FORM  34. 

sheet  are  charged  to  each  sub-account,  and  then  are  accumu- 
lated on  a  "Weekly  Distribution  of  Payroll. "  The  purpose 
of  these  two  records  is  indicated  by  their  names.  The 
control,  or  amounts  so  distributed  when  framed  into  a 
journal  entry  for  the  total,  will  clear  an  account  in  the 
Construction  Cost  Record  of  Unadjusted  Labor  Charges 
to  each  specific  sub-account. 

The  payroll  sheets,  after  verification  at  the  end  of  the 
week,  are  recapitulated  and  this  recap  is  covered  by  an 


u 


194 


FIELD  ACCOUNTING  CONTROL 


invoice  which  as  previously  explained,  is  entered  on  the 
Invoice  and  Payroll  Register,  and  distributed  to  its  proper 
columns  the  account  number,  these  being  found  on  the  field 
checking  list.  The  labor  items  are  then  charged  to  their 
respective  sub-accounts  in  the  Construction  Record. 

A  further  discussion  of  the  problems  arising  in  the  control 
of  the  payroll  will  be  found  in  Part  III,  Chap.  XVII. 

Plant   Rental. — When   a   contractor   charges   for   plant 


DATE 


J.9 


DAILY   CHECK   LIST 


X    ) 

NO. 

HRS. 

RATE 

AMT. 

V 

V 

V 

y 

—  ^_ 

FORM  35. 


Date. 


TIMEKEEPERS    DAILY   DISTRIBUTION 


Total 

10.1 

11.2 

12.3 

13.4 

14.5 

15  6 

16  7 

17.8 

189 

= 

FORM  36. 

rental  he  assumes  all  the  expense  to  keep  it  in  efficient 
working  order.  Any  repairs  or  labor  through  break  down 
or  otherwise  is  an  expense  to  the  contractor;  but  the  labor, 
fuel,  etc.,  used  to  operate  the  plant  is  an  expense  to  the 
owner.  The  owner  pays  for  the  use  of  the  plant  to  the 
extent  of  the  rental  in  addition  to  which  he  must  also  pay 
the  cost  of  operating  it.  This  cost  is  reflected  in  the  weekly 
payroll  and  supplies  paid  for  by  the  general  contractor, 
and  for  which  he  is  reimbursed  by  the  owner. 


HANDLING  FIELD  PAPERS  195 

Freight  Bills. — The  consignee  usually  pays  all  freight 
bills,  and  when  the  material  is  bought  f.o.b.  shipping 
point,  freight  is  treated  as  an  increase  in  the  cost  shown  on 
the  invoice.  If  the  order  is  placed  f.o.b.  Site  or  Destina- 
tion, the  freight  bill,  when  paid,  is  charged  in  the  suspense 
Account  Section  at  the  back  of  the  Accounts  Payable 


EMI'LOYIUEXT  .< 


10 


Home Emp.  ,Vo._ 

Date  employed. 


JSbttc 


!HOUR  _ 

DAJL Bate  for  overtime 
MONTH 


Approved: 


Works  Superintendent. 


FORM  37. 


CHANGE  OF 

RATE 

Timekeeper: 

Hn. 

ftwtii  ntf(|n 

(  presentl 

New  occupation 

i    rate    \ 
(  new  » 

Chanwe  effective 

irate) 

Approved: 

Worki  Superintendent 

Contractor's  Superintendent 

FORM  38. 


ledger  to  the  debit  of  Consignor's  Freight,  and  the  amount 
is  deducted  from  the  face  of  the  vendor's  invoice.  When 
the  invoice  is  entered  in  the  Register,  the  freight  deducted 
is  entered  to  the  credit  of  Consignor's  Freight  to  clear  the 
amount  before  debited. 

Recording  Salvaged  Material. — On  a  big  job  a  quantity 
of  material  is  usually  left  over.  Such  material  is  salvaged 
for  the  owner's  credit,  and  adjusted  in  the  following  manner: 


196 


FIELD  ACCOUNTING  CONTROL 


A  physical  inventory  is  made  on  the  ground  and  framed 
into  a  journal  entry  at  cost  value,  debiting  suspense  Inven- 
tory Account,  and  crediting  the  various  stores  accounts 
heretofore  charged.  If  any  of  this  material  is  subsequently 
sold  the  value  is  charged  to  an  account  Collection  Bills 
Receivable.  To  the  statement  sent  the  owner,  a  "  Report 
of  Salvage  Sales"  is  attached  showing  the  total  cost  of  the 


DISCHARGE  CHECK 

Piy                                                                     w« 

Up  to 

mr                                          101 

Joh 

Foreman 

FOHM  39. 


NO                                                       DATE 

101 

PAYEE 

h 
E 
o 

RECEIVED  FROM      L.K.COMSTOCK 

a  co. 

H 
•< 
M 
H    H 
X    S 

UABOR-NO.  HOURS 

DOLLARS          CTS 

?s 

a  " 

EXPENSES 

£§ 

*£ 

TOTAL 

•s.    W 

a  » 

•i 

SIGNED 

o 

0 
H 

FORM  40. 

material  as  against  the  amounts  of  the  Collection  Bills; 
the  difference  is  the  loss  on  sales. 

Contract  Liability  of  Owner. — The  contract  liability  of 
the  owner  to  the  contractor  is  recorded  on  individual 
accounts  for  each,  these  amounts  gradually  being  absorbed 
by  memorandum  postings  of  the  requisitions  paid  on 
account.  As  all  the  requisitions  are  registered,  vouchered, 
and  classed  as  invoices,  it  is  obvious  that  when  they  are  so 
treated,  the  cost  is  properly  charged  as  it  accrues.  This 


HANDLING  FIELD  PAPERS  197 

RELEASE  BY  SUB-CONTRACTOR 
PROJECT  NO 

WHEREAS,  on day  of ,  19.  . . , 

contractor  under  contract  with  the  General  Contracting  Corporation 

for  general  construction  work,  entered  into  a  contract  with 

,  sub-contractor,  for  the  performance  of  certain  work, 

and 

WHEREAS,  the  said  sub-contractor  has  demanded  final  payment 
under  the  terms  of  said  sub-contract; 

NOW,  THEREFORE,  in  consideration  of  the  sum  of  $ , 

the  receipt  whereof  is  hereby  acknowledged,  said  sum  being  the  final 
payment  to  which  said  sub-contractor,  is  entitled  under  his  contract 
with  said  contractor,  he  hereby  remises,  releases  and  forever  dis- 
charges said  contractor,  and  the  General  Housing  Corporation,  his-its- 
their  heirs,  executors,  administrators,  successors  or  assigns,  of  and  from 
all  payments,  claims,  demands,  actions  or  liability  of  any  kind  whatso- 
ever in  law  or  equity  which  said  sub-contractor,  had  or  has,  or  which 
said  sub-contractor  his-its-their  heirs,  executors,  administrators,  suc- 
cessors or  assigns  hereafter  may  have  against  said  contractor  or  the 
General  Contracting  Corporation,  for,  upon  or  by  reason  of  any 
matter,  cause  or  thing  contained  in  said  agreement,  or  any  amend- 
ment or  supplement  thereto,  or  done  or  omitted  to  be  done  thereunder, 
or  for  any  other  cause  whatsoever  arising  out  of  said  agreement  or 
otherwise,  reserving  however  unto  the  contractor  and  the  General 
Contracting  Corporation  all  rights  which  they  or  either  of  them  may 
have  under  said  sub-contract. 

IN  WITNESS  WHEREOF,  ,  sub-contractor, 

has  executed  this  release  this day  of , 

1919. 

WITNESS: 

Sub-contractor. 


FOKU  41. 


198 


FIELD  ACCOUNTING  CONTROL 


SCHEDULE  OF  SUB-CONTRACTS 


Term  43 


Location  Phila,  Pa. 
Contract  No.  1009 


General  Contractors  L.K.  Comstock  &  Co.,Inc:7s"ew  York 

Period  Ending  July  31,  1919 


Account 
Symbol 

Name 

Nature  of  Work 

Contract 
and 
Extra 

Orders 

Contractors 
Compensation 

tal 

Balance 

Plant 
Rental 

Fee 

Tc 

M.I 

Andrews  i  Wilson 

Sheet  Metal 

S57 

700 

$ 

525 

S  5 

9CO 

S64 

125 

152 

Cost  to  D»ts 

20 

000 

175 

2 

000 

22 

175 

Unfinished 

37 

700 

350 

3 

900 

$41 

950 

Thomas  Roofm.-  Co. 

Slag  Roofing 

26 

500 

Lum 

pSum 

26 

500 

15.6 

Cost  to  Data 

13 

OOU 

13 

(XX) 

•Unfinished 

13 

500 

13 

500 

J.W.Goddard  Corp. 

Water  Lines 

55 

OCO 

500 

6 

000 

61 

500 

W 

Cost  lo  Dat« 

15 

000 

100 

1 

200 

16 

300 

DnflnUhed 

40 

000 

400 

4 

800 

45 

JOO 

R.J.Uarri.on  *.  Bra. 

Heating 

110 

000 

700 

14 

000 

124 

700 

20 

Cost  to  Data 

70 

000 

450 

9 

000 

79 

450 

Unfinlbhtd 

40 

000 

250 

5 

000 

45 

250 

Anderaon  Corporation 

Plumbing 

Mj 

000 

900 

15 

000 

295 

900 

19 

Cost  to  Data 

150 

000 

400 

8 

000 

158 

400 

UnfinisLed 

130 

000 

500 

7 

000 

137 

500 

Haiti  J  iiuLler,  Inc. 

Lighting 

70 

000 

700 

7 

000 

ii 

700 

21 

Cost  to  Date 

40 

000 

400 

4 

000 

44 

400 

Unfinished 

30 

000 

300 

3 

000 

33 

300 

P  Lakej  i    Bro. 

Brick 

TOU 

(XX) 

1 

400 

30 

000 

132 

400 

22 

Colt  to  Data 

55U 

000 

2 

000 

25 

000 

577 

JOO 

Lnfiniebid 

150 

000 

400 

5 

oeo 

156 

400 

T  RCroiilej  i  Co. 

Painting 

65 

000 

750 

7 

300 

73 

000 

25  1 

Coit  to  Date 

42 

000 

300 

4 

000 

46 

500 

Unfinished 

23 

000 

250 

3 

300 

26 

550 

T.U  Crosslej  &  Co* 

Papering 

25 

000 

Lu*u 

pbun 

25 

000 

25.3 

Cuat  to  Date 

15 

000 

15 

000 

Unfinlihed 

10 

000 

10 

OCO 

J.±  VKC.Thompeon 

Plaetcrng 

190 

000 

400 

10 

000 

200 

400 

18.7 

Colt  to  Dan 

160JOOO 

260 

6 

000 

166 

200 

Unfinished 

30 

000 

150 

4 

ouo 

34 

150 

National  Paring  Co. 

Paring 

125 

000 

£> 

umateJ 

nitP 

let 

125 

000 

31.4 

Cost  to  Dale 

40 

000 

40 

000 

Unfinished 

35 

000 

85 

OCO 

8un.rn.ty 

Totil  Comravll 

1701 

200 

6 

875 

95 

200 

1806 

275 

T  xal  Coat  to  Date 

1.111 

000 

4275 

59 

200 

1.17S 

47J 

1 

Balance    bciar  Total  Coo 

act  LUL.il  it  j 

HI 

2v,0 

2 

600 

36 

000 

627 

SCO 

FORM  43. 


HANDLING  FIELD  PAPERS  199 

value,  set  up  as  a  side  record,  is  further  reduced  by  any 
modification  of  the  price  accepted  by  an  order  of  deduction 
which,  of  course,  never  reaches  the  cost. 

As  noted  before,  all  preparation  of  cost  which  constitutes 
the  supporting  data  to  complete  a  voucher,  is  performed  by 
the  contractor's  office  force,  which  force  is  engaged  by  the 
contractor  on  the  approval  of  the  auditor.  As  one  can 
readily  see  this  does  not  reduce  the  auditor's  duties  of 
keeping  control  over  both  the  work  of  the  contractor's 
accounting  force  and  the  records  of  the  disbursing  agent. 

Condensed  Sequence  of  Operation. — The  procedure  out- 
lined in  this  and  the  preceding  chapter  can  now  be  condensed 
into  the  following  sequence  of  operations  for  material 
charges : 

1.  Placing  the  order  with  the  vendor. 

2.  Receipt  of  bill  of  lading  and  freight  bill. 

3.  Receipt  of  invoice  from  vendor. 

4.  Verify  extension  of  invoice. 

5.  Check  invoice  against  order. 

6.  Post  invoice  to  Accounts  Payable  Ledger. 

7.  Affix  account  symbol  to  be  charged. 

8.  Have  cost  engineer  or  field  auditor  approve  of  symbol  affixed. 

9.  File  in  alphabetical  order  for  invoices  incomplete. 

10.  Make  out  receiving  ticket  when  goods  are  received. 

11.  Withdraw  from  incomplete  file  and  attach  receiving  ticket,  then 
file  in  alphabetical  order  for  invoices  complete  and  unpaid. 

12.  Withdraw  from  file  when  ready  to  pay,  and  hand  over  to  field 
auditor  who  signs,  and  then  secures  the  approval  of  works  superin- 
tendent and  contractor's  representative. 

13.  Enter  on  Invoice  and  V.C.  Register  giving  it  a  number. 

14.  Return  original  to  auditor  to  voucher  and  pay. 

15.  Post  duplicate  to  C.C.R. 

16.  File  duplicate  in  complete  and  paid  file  in  numerical  order. 

17.  Check  entries  in  Construction  Cost  Record  made  from  duplicate 
invoices,  against  entries  in  Invoice  and  V.C.  Register,  and  if   found 
correct  foot  both  books. 

18.  Enter  check  number  in  Invoice  and  V.C.  Register  against  the  bill 
liquidated. 

19.  Enter  check  number  in  Accounts  Payable  Ledger   against  bill 
liquidated  as  shown  on  the  Invoice  and  V.C.  Register. 


200  FIELD  ACCOUNTING  CONTROL 

20.  Post  total  construction  cost  to  date  and  the  detail  of  invoices 
paid  in  the  combined  Cash  and  Ledger  Journal  and  make  out  state- 
ment of  expenditures  to  be  sent  to  owner. 

The  sequence  of  operations  for  the  labor  items  is  as 
follows : 

1.  Check  total  hours  against  time  sheets  for  each  day. 

2.  Verify  the  extensions  and  footings  of  each  payroll  sheet. 

3.  Check  footing  as  shown  in  each  payroll  sheet  against  the  recap. 

4.  Add  the  unclaimed  of  previous  payrolls  paid,  and  deduct   the 
unclaimed  pay  of  the  current  payroll. 

5.  Cover  by  a  bill  for  the  net  payroll,  and  treat  as  an  invoice 

6.  Enter  on  Invoice  and  V.C.  Register  giving  it  a  number  then 
Voucher. 

7.  Post  in  Construction  Cost  Record  to  an  account  known    as 
Unadjusted  Labor  Charges. 

8.  When  the  weekly  distribution  comes  in,   charge  to  the    sub- 
account  symbols  as  shown,  and  clear  Unadjusted  Labor  Charges  with  a 
credit,  which  should  be  the  total  charged  to  the  sub-account  symbols. 


CHAPTER  XVI 
MONTHLY  REPORTS  TO  OWNER 

Nature  of  Report. — As  explained  in  a  preceding  chapter, 
at  regular  intervals,  and  usually  at  the  end  of  the  month, 
a  report  is  sent  to  the  owner  giving  particulars  of  all  expen- 
ditures to  date.  The  statement  and  schedules  presented 
in  this  chapter  with  interlocking  figures,  are  taken  from 
actual  practice  and  consist  of  the  following: 

1.  Statement  of  construction  costs  and  cash  advanced  and  disbursed. 

2.  Summary  of  general  or  main  group  accounts. 

3.  Schedule  of  items  held  in  suspense. 

4.  Schedule  of  pay  lists  covering  vouchers  liquidated  during  the 
month,  less  collections  made. 

5.  Transcript  of  control  accounts  and  trial  balance  showing  reconcilia- 
tion between  the  charges  and  credits. 

In  addition  to  the  foregoing  schedules,  the  report  should 
also  include  a  schedule  of  the  specific  or  detailed  costs 
taken  from  the  detailed  cost  accounts  in  their  order  of 
classification;  but  as  such  a  schedule  runs  to  several  foolscap 
sheets  and  consists  merely  of  the  detail  of  the  general  group 
accounts,  it  is  not  here  presented.  The  schedules  to  follow 
are  sufficiently  illustrative  of  the  method  of  drawing  up 
the  report  and  of  the  relationship  of  the  figures  and  accounts 
to  each  other. 

Statement  of  Construction  Costs. — This  statement  is 
a  summary  of  all  costs  which  have  gone  into  the  construc- 
tion both  direct  and  as  overhead  expense.  It  is  thus  a 
summarization  of  the  exhibits  and  schedules  to  follow. 

The  first  section  of  this  statement  consists  of  the  summary 
figures  of  the  total  costs  to  date.  The  second  section 
shows  the  total  cash  disbursed,  plus  any  unpaid  vouchers 

201 


202 


FIELD  ACCOUNTING  CONTROL 


which  are  in  the  costs  and  any  material  received  by  transfer 
from  some  other  source  of  supply  than  vendors,  such  as  the 
store  room  of  the  owner  or  some  other  project  he  is  operat- 
ing. Such  transfers  are  credited  according  to  their  source. 
The  sum  total  of  the  above  is  reduced  by  the  total  collec- 
tions made  which  is  debited  to  the  owner.  (See  Treasurer's 
Control  Account  to  follow  $23,898.75  +  $4,063.65  = 
$27,962.40.  This  amount,  deducted  from  the  total  dis- 
bursements gives  the  " Total  Costs"  as  shown  on  the 
statement. 

Field  Construction  Accounts: 

Specific  Accounts  (per  schedule  "A") $1,565,417.34 

Suspense  Register  (per  schedule  "B") 27,928.88 

Total  Construction  Costs  entered 1,593,346.22 

Consignor's  Freight  paid  but  not  yet  deducted  (per 

schedule  "D") None 

National  Housing  Company  "Field  Staff" 8,750.00 

Total— all  costs 1,602,096.22 

Disbursements 1,616,302.62 

Vouchers  approved  and  entered,  but  not  paid 3,500 

Add:  Value  of  material  received  from  other  projects.  10,256.00 

1,630,058.62 

Deduct:  Cost  of  material  sold,  or  transferred 27,962.40 

Total  Costs 1,602,096.22 

Obligations  not  paid  nor  entered 

Unpaid  invoices  on  hand  (per  schedule  "C") 10,250.62 

Unclaimed  Wages 176.00 

Total 10,426.62 

Contingent  Liabilities 

Field  orders  (per  schedule  "E")  approx.  value 3,750.29 

Other  than  field  (per  schedule  "F")  approx.  value. . .  1,767.96 

Total _  5,518.25 

Cash  Statement 

Deposits 1,650,000     Disbursements  as  above 1,616,302.62 

Balance  on  hand _        33,697.38 

1,650,000 1,650,000.00 

Certified  correct  as  to  total  disbursements, 

Disbursing  Officer 
Certified  Correct, 

Field  Auditor. 


MONTHLY  REPORTS  TO  OWNER  203 

A  memorandum  record  is  made  of  unpaid  obligations 
that  have  not  been  entered  and  also  of  any  obligations 
considered  a  contingent  liability  of  the  owner,  such  as 
unfilled  field  orders,  etc. 

A  cash  summary  is  given  at  the  bottom  of  the  statement 
showing  the  advances  made  to  the  field  agent  by  the  owner 
and  the  total  disbursements,  the  difference  being  the  cash 
on  hand.  The  statement  will  be  found  on  page  202. 

Main  Group  and  Suspense  Accounts. — Schedules  A  and 
B,  which  make  up  the  total  construction  costs  and  which  are 
the  first  entries  on  the  preceding  statement,  are  drawn  up 
as  shown  below.  The  "Suspense  Register  as  per  Schedule 
B"  summarizes  (1)  the  cost  value  of  unassigned  material, 
(2)  debit  memos  awaiting  ultimate  disposition,  (3)  loss  on  the 
sale  of  material  at  a  price  below  cost  and  (4)  uncollected 
bills  for  material  sold  as  salvage  which  are  credited  to 
the  various  material  costs  and  charged  to  suspense  pending 
their  payment.  When  paid  the  receipts  are  applied  as  a 
credit  to  the  total  disbursements.  The  salaries  of  the  field 
accounting  staff  are  added  to  these  two  classes  of  cost, 
making  up  the  total  cost. 

Analysis  of  Pay  Lists. — This  is  a  schedule  of  the  pay 
lists  forwarded  to  the  owner  during  the  month  with  copies 
of  the  vouchers  liquidated  attached  to  each  list.  The 
schedule  shows  the  difference  between  the  actual  disburse- 
ments made  and  the  amount  of  collections  received  by  the 
agent,  making  it  a  composite  record  of  receipts  and  dis- 
bursements in  connection  with  the  building  operations. 
The  schedule  will  be  found  on  page  205. 

Transcript  of  Ledger  Control  Accounts. — In  the  tran- 
script of  the  control  accounts  operated  by  the  field  auditor 
the  balance  of  each  account  at  the  beginning  of  the  month  is 
shown  to  which  the  charges  and  credits  for  the  current 
month  are  added  as  given,  will  be  found  on  page  206. 


204 


FIELD  ACCOUNTING  CONTROL 


Account 
Symbol 

Account 

Labor 

Material 

Total 

10 

Overhead  

51,949  15 

26  620  97 

78  570  12 

11 

Preparation  of  Site  

20  327  22 

32  029  74 

52  356  96 

12 

13  634  26 

13  634  26 

13 

Masonry  

172,649  35 

231  818  10 

404  467  45 

14 

Carpentry  

151,055  55 

172  243  04 

323  298  59 

15 

Roofing  

3  861  32 

21  214  33 

25  075  65 

16 

Sheet  Metal  Work  

6,102  96 

12  963  99 

19  066  95 

17 

Iron  Work  

676  35 

15  860  48 

16  536  83 

18 

Plastering  

57  705  51 

26  771  94 

84  477  45 

19 

53  868  54 

76  933  20 

130  801  74 

20 

Heating  

31,962  92 

45  111  52 

77  074  44 

21 

Lighting  

13  985  39 

13  322  99 

27  308  38 

22 

Flooring  

19,239  48 

22  538  19 

41,777  67 

23 

Hardware  

47  50 

11  062  35 

11  109  85 

25 

Painting  and  Paperhanging 

29,164  48 

17  865  33 

47  029  81 

28 

Fences  

6  074  95 

9  371  67 

15  446  62 

29 

Landscaping  

14,12530 

4  664  83 

18,790  13 

30 

Cleaning  Up  

9,504  55 

176  20 

9  680  75 

31 

4,629  78 

8  393  84 

13  023  62 

32 

Concrete  Curbs  and  Gutters  

47  60 

221  76 

269  36 

33 

Cement  Work  

17,077  69 

10  126  39 

27  204  08 

42  216  27 

37  962  50 

80  178  77 

Water  Lines  

17,085  01 

11  162  27 

28,247  28 

43 

Parks  

6,213  14 

13  777  44 

19  990  58 

Total  Specific  Accounts  

743,204  27 

822  213  07 

1,565,417  34 

Suspense  Account  Schedule  "B" 
Collection  Bills  Receivable.  .  .  . 

10  976  42 

Prepaid  Freight  

176  20 

Loss  on  Sales  

2  652  50 

Unadjusted  Debit  Memos  

42.50 

10.119 

Non-expendable  Items,  Inventory  

1,405  27 

13.22 

Mason's  Materials,  Inventory  .  .  . 

622  55 

13.24 

Cost  Stone,  Inventory  

176.50 

14.1 

Lumber,  Old,  Inventory  

3,700.42 

14.1 

Lumber,  New,  Inventory.  .    .  . 

2,795  40 

14.2 

Millwork,  Inventory  

1,622.76 

15.2 

Slate  Roofing,  Inventory  

225.00 

16.1 

Sheet  Metal,  Inventory  

976  32 

17.2 

Iron  Work,  Inventory. 

1,477  96 

17.5 

Wire,  Iron  and  Steel,  Inventory  

27.92 

18.2 

Plaster  Material,  Inventory  

176  97 

19.1 

Plumbing  Material,  Inventory 

225.00 

20.2 

176  92 

21.1 

Electrical  Supplies,  Inventory  

324.77 

23.2 

Hardware,  Inventory  

147  50 

Total  

27,928.88 

MONTHLY  REPORTS  TO  OWNER 


205 


Date 

Net 
Amount 

Credit 
Collection 
Bills 

Debit 
Disburse- 
ments 

Dec     1 

P  L  Field  54  —  207  

1,742.97 

15642 

1  89939 

2 

8 

4,706  95 

42  19 

4  749  14 

3 

9  

1,496.45 

7791 

1  574  36 

4 

210  

1,792.50 

500 

2,292  50 

5 

1   . 

505.27 

2246 

527  73 

6 

2  

1,476.92 

177.92 

1,654  84 

8 

3  

1,333.42 

1,333.42 

g 

4  

2,700.95 

150.27 

2,851  22 

10 

5  

1,250.46 

92.19 

1,342.65 

11 

6  

1,792.88 

27.42 

1,820.30 

12 

7  

1,477.96 

150.96 

1,628.72 

13 

8  

906.47 

177.49 

1,083.96 

15 

9  

1,227.92 

227.50 

1,455.42 

16 

220  

5,470.91 

5,470.91 

17 

1  

2,786.71 

2,786.71 

18 

2  

2,223.47 

92.33 

2,315.80 

19 

3       

1,966.32 

27.91 

1,994.23 

22 

4  

1,607.70 

422.50 

2,030.20 

23 

5  

1,946.85 

1,500.96 

3,447.81 

24 

6  

1,791.56 

27.42 

1,818.98 

26 

7  

1,347.92 

1,347.92 

27 

8  

340 

50 

390 

30 

9  

1,500.77 

140 

1,640.77 

31 

230  

1,692.27 

1,692.27 

Dec   15 

P  L  General  41  

45,085.60 
700 

4,063.65 

49,149.25 

31 

42  

650 

1,350 

Total  Disbursements  

50,49925 

Total  Deductions  

4,063.65 

Net  Total.. 

46,435.60 

Approved, 
Certified  Correct, 


Disbursing  Agent. 
Field  Auditor. 


206 


FIELD  ACCOUNTING  CONTROL 


AUDITED  VOUCHERS  PAYABLE 


11/30/20 

Totals          

1,548,096.97 

11/30/20 

Totals   

1,548  096  97 

12/31/20 

Disb.  Agent  

50,499.25 

12/31/20 

Funds.  .".  

53,999  25 

12/31/20 

Balance  

3,500 

1,602,096.22 

1,602,096.22 

12/31/20 

3  500 

TREASURER'S  ACCOUNT 


11/30/20 

Totals     .              .    . 

23,898.75 

11/30/20 

Totals 

1  600  000 

12/31/20 

Suspense  C  Bill  .... 

4,063.65 

12/31/20 

50,000 

12/31/20 

Balance  

1,622,037.60 

1,650,000 

1,650,000 

12/31/20 

Balance.  ... 

1,622,037  60 

DISBURSING  AGENT  ACCOUNT 


11/30/20 

Totals  

1,600,000 

11/30/20 

Total  

1,565,803.37 

12/31/20 

Treasurer  

50,000 

12/31/20 

And  Vo.  Payable.  .  . 

50,499.25 

12/31/20 

Balance  

33,697.38 

1,650,000 

1,650,000 

12/31/20 

33  697  38 

SPECIFIC  CONSTRUCTION  ACCOUNT 


11/30/20 

Total 

1,512  768  09 

12/31/20 

1  565  417  34 

12/31/20 

And  Vo.  Payable.  .  . 

52,649.25 

12/31/20 

Balance  

1,565,417.34 

SUSPENSE  ACCOUNT 


11/30/20 

Total  

31,992.53 

12/31/20 

Coll.  Bill  

4,063  65 

12/31/20 

Balance  

27,928.88 

12/31/20 

Balance  

27,928.88 

GENERAL  EXPENSE 


11/30/20 

Total  

7,400 

12/31/20 

8,750 

12/31/20 

And  Vo.  Payable..  . 

1,350 

12/31/20 

Balance  

8,750 

GOODS  RECEIVED  FROM  OTHER  PROJECTS 


L  2/3  1/20 

Balance  

10,256 

11/30/20 

Total  

10,256 

12/31/20 

10,256 

TRIAL  BALANCE 


Disbursing  Agent  %  

33,697.38 

3,500 

Specific  Construction  %  

1,565,417.34 

1,622.037.60 

Suspense  %  

27,928.88 

Goods  Reed.  Other  Projects.. 

10,256 

General  Expense  %  . 

8,750 

1,635,793.60 

1,635,793.60 

PART  III 

CHAPTER  XVII 
PAYROLL  PROBLEMS 

Weekly  Payroll. — In  a  big  construction  project  employ- 
ing a  thousand  or  more  men  many  problems  arise  in  the 
handling  of  the  payroll  and  the  difficulties  can  only  be 
solved  by  systematic  attention  to  detail.  The  suggestions 
to  follow  are  taken  from  the  author's  experience. 

The  payroll  names  should  be  grouped  as  nearly  as  possi- 
ble according  to  the  three  following  principles: 

1.  The  nature  of  the  work  performed. 

2.  The  distribution  of  cost. 

3.  The  order  of  the  employee's  responsibilities. 

The  badges  showing  the  person's  employment  number 
should  be  given  out  in  consecutive  order  of  hundreds  and 
should  distinguish  one  class  of  work  or  occupation  from 
another.  The  numbers  should  be  grouped  on  the  payroll 
by  occupations,  so  that  when  checking  and  recapitulating 
no  further  distribution  is  required.  In  this  way  posting 
is  reduced  to  the  minimum  for  each  class  of  cost. 

At  the  peak  of  a  big  job,  the  weekly  payrolls  at  times 
may  run  to  a  hundred  or  more  sheets.  Each  sheet  should 
be  footed  separately,  and  footings  should  not  be  carried 
forward.  Each  sheet  is  numbered  each  week,  beginning  at 
1,  and  continued  in  consecutive  order  to  the  last  sheet. 
The  footing  of  each  sheet  is  assembled  on  a  "Summary  of 
Payroll"  for  the  week  and  the  individual  sheets  are  con- 
sidered as  invoices  numbered  from  1  up. 

The  time  entered  on  the  weekly  sheets  is  taken  daily 

207 


208  ACCOUNTING  FOR  CONTRACTORS 

from  the  " Daily  Time  Checking  Sheets,"  described  in  the 
preceding  chapter.  At  the  end  of  the  week  the  weekly 
sheets  are  cross  added  to  get  the  total  time  of  each  employee 
for  the  week.  The  rate  of  pay  per  hour  or  day  is  then 
entered,  after  which  each  line  is  extended  and  the  employee's 
wage  is  entered  in  the  "Amount  Due"  column.  This 
column  is  then  footed  for  the  total  wages  on  each  sheet 
only,  after  wThich  the  totals  of  all  sheets  are  recapitulated 
on  the  weekly  summary. 

Handling  Payroll  Receipts. — The  receipts  taken  from 
employees  should  be  on  a  light  card  and  should  state  that 
the  amount  paid  is  in  full  settlement  of  the  wages  to  date. 
The  date  should  be  put  on  with  a  rubber  stamp,  and  the 
only  writing  on  the  envelope  should  be  the  employee's 
number  and  the  amount  due,  no  name  being  necessary, 
as  this  is  secured  when  the  receipt  is  signed;  moreover  the 
name  follows  the  number  on  the  payroll  sheet.  The 
receipts  are  given  out  by  the  foremen  on  the  job  each  Friday 
to  the  men,  who  sign  them  and  when  they  receive  their 
pay  envelopes,  drop  them  through  the  slot  of  a  box  kept 
under  lock  and  key.  The  paymaster  makes  up  the  payroll, 
and  hands  the  money  to  the  men,  but  the  auditor  should 
collect  the  receipts  for  the  money  paid.  When  the  pay- 
master hands  him  the  unpaid  envelopes  these  and  the 
receipts  collected  should  equal  the  payroll.  In  this  way 
collusion  is  prevented  and  there  is  no  possibility  of  padding 
the  payroll. 

The  subsequent  payment  of  any  unpaid  envelopes  is 
accounted  for  by  a  supplemental  statement  of  unpaid 
wages  attached  to  each  weekly  payroll,  listing  in  one  column 
the  items  still  unpaid,  and  in  another  those  paid  and  the 
week  they  apply  to,  for  which  there  must  be  a  receipt. 
The  balance  of  this  statement  is  the  total  unpaid  wages 
to  date.  If  there  are  no  envelopes  left  at  the  end  of  the 
job  the  statement  becomes  automatically  closed. 

The  contractor's  representative  (who  is  usually  the  field 
auditor)  should  assort  the  receipts  he  takes  from  the  box  in 


PA  YROLL  PROBLEMS  209 

their  numerical  order,  so  that  he  can  check  them  against 
the  payroll  when  it  is  turned  over  to  him  by  the  paymaster, 
which  is  usually  on  the  Monday  following  the  Saturday 
payday. 

The  payroll  receipts  are  put  away  in  weekly  packages 
after  they  are  arranged  in  numerical  order  of  the  employ- 
ment number.  On  the  list  showing  the  unpaid  items  on 
hand  as  they  are  paid  a  notation  of  the  date  should  be  made 
against  each  amount.  If  any  remain  unpaid  at  the  end  of 
the  job  they  are  credited  to  the  cost  and  re-deposited. 

Audit  of  Payroll. — In  the  auditing  of  the  payroll,  first 
verify  the  extensions,  then  the  footings,  and  if  found  correct 
see  that  the  footings  are  properly  transcribed  to  the  recap. 
Short  cuts  save  time  and  effort  when  checking  the  exten- 
sions, and  the  writer  would  suggest  the  following  procedure 
in  their  verification. 

First  verify  the  cross  addition  of  the  time  in  days  making 
up  the  total  hours  for  each  workman  each  week.  In  a 
great  many  groups  the  hours  are  the  same  and  employees 
receiving  the  same  rate  of  pay  are  tabulated  together. 
Add  the  first  line  of  the  group  and  a  glance  at  the  entries 
that  follow  will  show  if  there  is  any  variation;  if  they  are 
the  same,  tick  each  total  for  each  employee  and  foot  the 
amounts  paid  in  each  group.  This  total  divided  by  the 
rate  will  give  the  total  hours  in  the  group,  which  if  found 
equal  to  the  footing  of  the  total  hours  is  proof  of  the  correct- 
ness of  each  individual  extension.  When  the  total  for 
each  week  in  a  group  is  the  same  as  that  on  the  first  line  of 
the  group,  by  using  the  number  of  lines  as  a  multiplier  of 
the  total  for  the  week  on  the  first  line,  the  resulting  figure 
will  be  the  total  hours  for  the  group. 

Putting  up  the  Money. — Some  paymasters  count  the 
money  drawn  from  the  bank  while  others  accept  the  bank's 
count  as  correct;  the  writer  relied  on  the  bank's  count  for 
6  years  without  finding  a  difference  and  his  confidence  in 
the  bank's  accuracy  resulted  in  just  so  much  time  saved. 

In  handling  a  big  payroll  the  filling  of  the  envelopes  can 

14 


210  ACCOUNTING  FOR  CONTRACTORS 

be  done  rapidly  and  accurately  by  two  men  working  together 
as  follows: 

First  stack  up  all  bills  in  the  following  order: 

Top  row  $100,  50,  20. 
Bottom  row  $10,  5,  2,  1. 

One  man  counts  the  money  and  hands  it  to  the  other 
who  puts  it  in  the  envelope.  When  all  the  envelopes  are 
filled,  there  should  be  no  bills  left. 

Then  spread  all  the  specie  out  in  piles  of  $.50,  .25,  .10, 
.05,  .01,  and  do  as  with  the  bills.  If  there  is  no  money  left 
over,  it  is  an  assurance  of  the  correctness  of  the  count. 
By  doing  these  two  operations  separately  confusion  is 
prevented,  as  the  clerks  are  occupied  with  one  thing  at  a 
time,  first  counting  scrip  and  then  specie. 

Denominating  Machine  for  Payroll  Work. — When  the 
payroll  for  a  week  contains  the  names  of  2,000  or  more 
employees,  one  of  the  most  tiresome  and  time  absorbing 
duties  is  to  determine  the  denomination  of  the  bills  and 
specie  necessary  to  make  it  up.  There  is  a  machine  on 
the  market — the  International  Money  Machine — which 
is  compositely  an  adding  and  denominating  machine.  The 
same  operator  who  writes  out  the  pay  envelopes  adds 
their  amounts  on  the  machine  which  prepares  a  ribbon 
showing  the  amount  of  each  envelope  and  the  total  of  all 
of  them.  On  a  side  attachment  a  revolving  index  gives 
the  denomination,  as  follows: 

Bills  $100,  50,  20,  10,  5,  2  and  1. 
Specie  $.50,  .25,  .10,  05,  .01. 

The  machine  thus  indicates  the  amount  in  dollars  and 
cents  required  for  all  the  envelopes  but  not  the  total  number 
wanted.  When  these  amounts  are  entered  on  the  denomi- 
nation slip,  which  some  banks  supply  free  of  charge,  their 
total  will  equal  the  total  made  from  the  envelopes  as  shown 
on  the  ribbon.  This  machine  is  accurate,  efficient,  labor 


PA  YROLL  PROBLEMS  21 1 

and  time-saving,  and  will  pay  for  itself  in  any  active  business 
in  one  year;  it  is  safe  to  say  it  would  have  a  salvage  value 
of  50  per  cent  of  cost  at  the  end  of  5  years  of  constant 
service. 

Daily  Time  Checking  Systems. — As  explained  in  the 
preceding  chapter  there  are  several  ways  of  checking  the 
time  in  and  out  on  a  big  construction  job,  such  as  the  brass 
check  system,  time  clock,  card  system,  etc.  In  the  case 
of  the  former,  the  man  when  going  on  the  job  drops  his 
check  (which  bears  the  number  of  the  employee  as  recorded 
on  his  employment  card)  in  a  box  placed  in  a  convenient 
location  for  that  purpose.  All  the  checks  of  those  on  the 
line  constituting  punctual  time  which  have  been  turned  in, 
are  assorted  and  hung  on  a  hook  which  bears  the  same 
number  as  the  check.  These  checks  are  then  made  into  a 
list  for  the  field  checker,  showing  the  numbers  of  the  men 
who  have  reported  for  the  day's  work.  At  about  10  a.m. 
and  3  p.m.  the  field  checker  locates  these  men  at  work, 
and  when  he  finds  them,  he  checks  their  number  on  the 
list.  Men  that  report  late  have  an  immediate  notation 
made  on  a  sheet  for  that  purpose,  and  the  same  is  done 
with  those  that  go  off  early.  The  " Field  Checking  Lists" 
if  found  to  conform  to  the  brass  checks  turned  in,  are  then 
used  to  make  up  the  payroll  each  day.  After  this  detail 
has  been  performed  the  tune  clerk  turns  the  brass  checks 
over  to  each  foreman,  who  distributes  them  to  the  men 
under  him  at  about  4  p.m.  each  day  so  they  may  be  used 
to  check  in  the  next  morning. 

The  time  clock  and  card  system  is  operated  in  the  follow- 
ing manner :  Each  man  has  a  weekly  time  card  showing  his 
number,  name,  the  amount  earned  for  the  week,  the  date  the 
week  .ends  and  a  place  for  his  signature.  This  part  of  the 
time  card  is  detachable,  and  acts  as  a  receipt  of  payment 
for  the  full  time  each  week,  which  is  noted  daily  on  the  part 
of  the  time  card  from  which  it  is  detached. 

These  cards  are  racked  in  the  numerical  order  of  the 
man's  employment  number  each  morning  for  every  man  who 


212  ACCOUNTING  FOR  CONTRACTORS 

passes  through  a  particular  booth,  as  on  a  very  large  job 
there  may  be  10  or  more  booths.  The  timekeeper  takes 
the  card  from  the  rack,  and  hands  it  to  his  assistant  to 
whom  the  man  reports.  The  man  then  takes  the  card, 
puts  it  in  the  clock  and  punches  the  time  on  and  hands  it 
back  to  the  assistant  timekeeper.  When  all  the  men  have 
passed  through  the  cards  are  assorted  and  re-racked  in 
another  rack,  which  is  the  "  Out  Rack."  The  field  checker's 
list  must  agree  with  the  cards  as  shown  in  the  Out  Rack, 
and  the  lists  are  used  to  enter  the  daily  time  to  each  man  on 
the  payroll.  The  clock  registers  the  time  for  a  full  working 
day  in  blue  ink  figures,  and  late,  or  overtime,  in  red.  On 
Thurdsay  of  each  week  these  cards  are  assorted  in  the  order 
of  their  entry  on  the  weekly  payroll,  and  compared  with  the 
entries  for  the  week  ending  Wednesday,  made  to  it  from 
the  field  checker's  lists.  At  this  time  the  time  card  shows 
the  amount  due,  and  total  hours  on  both  the  stub  attach- 
ment and  record  of  time,  which  is  the  amount  recorded  on 
the  payroll.  On  Friday  these  stub  receipts  are  distributed 
to  the  men  on  the  job,  which  they  sign  and  drop  in  the  box 
when  the  paymaster  hands  them  the  envelope  containing 
their  weeks  pay.  As  before  stated  these  receipts  and  the 
unpaid  envelopes  on  hand  on  Monday,  should  check  out 
every  name  and  amount  on  the  payroll. 

The  " Daily  Tune  Checking  Sheet"  however  as  described 
in  the  preceding  chapter  eliminates  all  the  handling  of 
detail  connected  with  other  systems,  and  besides  is  more 
economical  and  efficient.  It  gives  a  perfect  working  sheet 
record  of  each  man's  daily  time  and  is  the  system  recom- 
mended by  the  writer. 


CHAPTER  XVIII 
CONTROL  OF  EQUIPMENT 

Equipment  Card  Ledger. — In  the  contracting  business, 
equipment  forms  an  important  part  of  the  working  assets. 
All  machinery  used  in  actual  construction  work  exclusive 
of  small  tools,  is  classed  as  equipment.  The  value  of  each 
unit  of  equipment  is  recorded  on  a  card  and  this  card  ledger 
is  controlled  on  the  general  ledger  by  the  account  Machinery 
and  Equipment.  Each  unit  of  equipment  should  be  tagged 
or  in  some  way  marked  in  a  conspicuous  place  by  a  register 
number,  and  an  "Equipment  Register"  should  be  kept. 
The  entries  on  the  register  are  numbered  consecutively, 
and  when  equipment  is  purchased  it  is  entered  on  the  register 
and  given  its  line  number.  After  the  number  should  be 
stated :  (1)  the  kind  of  equipment,  (2)  from  whom  purchased, 
and  (3)  the  cost.  A  card  is  also  made  out  giving  these 
particulars,  and  filed  in  the  order  of  the  equipment  classifica- 
tion number,  which  filing  method  will  be  referred  to  again. 

The  card  inventory  of  equipment  is  charged  for  the  cost 
of  acquisition  and  any  replacements,  and  credited  for  any 
parts  discarded  or  sold.  The  sum  of  all  these  entries  is 
posted  to  the  General  Ledger  controlling  account.  Thus 
the  balances  of  all  equipment  cards  should  equal  the  book 
value  shown  on  the  General  Ledger. 

Keeping  Track  of  Equipment  in  Use. — When  equipment 
is  rented  for  use  on  a  job  for  which  the  contractor  receives  a 
fixed  fee,  the  fee  should  be  large  enough  to  compensate  him 
for  the  cost  of  getting  the  equipment  to  the  job,  the  labor 
of  setting  it  up,  repairs  to  keep  it  efficient,  depreciation 
for  wear  and  tear,  plus  a  fair  return  as  interest  on  the  cost 
of  the  investment. 

A  method  of  keeping  absolute  control  over  all  equipment 
on  hand  and  at  work  is  as  follows:  Keep  the  inventory 

213 


214 


ACCOUNTING  FOR  CONTRACTORS 


cards  in  their  proper  numerical  order  in  two  distinct  files, 
which  would  be  known  as 

File  1.  Equipment  "Idle." 
File  2.  Equipment  "Working." 

The  front  of  the  cards  should  be  designed  with  margins  to 
provide  for  the  amount  of  charges  for  cost  and  replacements, 
with  a  credit  column  for  any  parts  discarded  or  sold.  The 
back  of  the  cards  should  be  ruled  in  two  sections,  left  and 
right.  The  left  hand  section  is  to  record  the  date  the  equip- 
ment is  sent  to  the  job,  and  the  right  hand  section  is  to 
record  the  date  it  is  withdrawn  from  the  job,  the  date  and 
job  number  being  entered  in  both  sections  when  making 
the  record. 

CARD  FORMS 

Front 

Kind  of  Equipment  Classif.  No.  112 

"Steam  Shovel"  Unit  No.  1 


Date 

Debit 

Amount 

Date 

Credit 

Amoui 

19 

20 

1 

1  0 

Accts.  Payable.  .  .  . 

10000 

Back 


Delivered  to 


Date 

Job  Number 

From 

Date 

Job  Number 

To 

19 

20 

19 

20 

2 

10 

267 

Store 

7 

15 

267 

268 

Room 

7 

15 

268 

267 

12 

11 

268 

Store 

Room 

Returned  by 


CONTROL  OF  EQUIPMENT  215 

At  the  time  of  delivery  to  the  job  the  equipment  card  is 
withdrawn  from  File  1  and  after  the  job  number  and  date  of 
delivery  have  been  entered  in  their  proper  spaces  the  card 
is  placed  in  File  2  in  its  numerical  order.  When  the  equip- 
ment is  returned,  the  card  is  withdrawn  from  File  2,  the 
date  and  job  number  are  entered  in  the  right  hand  section 
and  it  is  replaced  in  File  1  in  its  numerical  order. 

If  the  equipment  in  use  is  not  returned  to  the  contractor's 
yard  or  to  the  store  room  when  one  job  is  finished,  but  is 
transferred  direct  to  another  job,  an  entry  should  be  made 
in  the  right  hand  section  to  show  the  date  and  new  job  to 
which  it  has  been  transferred,  and  the  same  date  and  new  job 
number  are  entered  in  the  left  hand  section. 

This  method  of  control  not  only  shows  the  location  of  all 
equipment  at  all  tunes,  but  it  also  serves  the  purpose  of 
distinguishing  between  equipment  idle  and  working.  This 
is  useful  information  when  determining  the  amount  of  depre- 
ciation reserve  to  set  up  each  fiscal  period,  as  idle  equipment, 
if  properly  cared  for,  does  not  depreciate  so  rapidly  as  equip- 
ment in  use.  Therefore  the  depreciation  charges  for  idle 
equipment  would  be  proportionately  reduced.  An  addi- 
tional feature  of  this  method  of  control  is  that  the  date 
delivered  and  returned,  as  recorded  on  the  delivery  cards, 
might  form  valuable  information  should  the  contractor  be 
charging  plant  rental  on  the  basis  of  time  in  days,  thus  fur- 
nishing a  record  of  the  exact  number  of  days  the  equipment 
is  in  use.  Equipment  should  only  be  delivered  to  the  job 
on  a  written  order  signed  by  the  foreman  in  charge  who 
should  also  be  held  accountable  for  any  shortage  if  parts 
are  missing  or  the  equipment  returned  is  less  than  that 
delivered. 

Classification  of  Equipment. — If  the  items  of  plant  and 
machinery  owned  by  the  contractor  run  into  hundreds  the 
equipment  classification  number  should  be  governed  by  the 
Dewey  Decimal  system  as  follows: 

The  numbers  to  the  left  of  the  decimal  point  are  for  the 
kinds  of  equipment,  and  the  classification  begins  with  No.  1. 


216  ACCOUNTING  FOR  CONTRACTORS 

In  drawing  up  the  classification,  the  first  thing  to  do  is  to 
number  the  different  kinds  or  types  of  equipment.  The 
numbers  to  the  right  of  the  decimal  point  are  allotted  to 
the  units  of  a  particular  classification.  Thus  if  there  are 
five  steam  shovels,  and  their  classification  number  is  112, 
then  the  five  shovels  would  be  numbered  and  classified  in  the 
files  as  follows:  112.1,  112.2,  112.3,  112.4,  and  112.5.  If  der- 
ricks are  classified  under  the  number  4  and  there  are  three  of 
them  in  the  inventory,  their  cards  would  be  numbered  4.1, 4.2 
and  4.3;  and  if  a  new  derrick  is  bought  it  would  be  given  the 
number  4.4,  and  so  filed.  There  is  of  course  no  limit  to 
the  possible  expansion  of  the  system.  In  drawing  up  the 
scheme  of  classification  take  a  small  pad,  and  on  each  sheet 
write  the  name  of  the  equipment,  such  as  Steam  Shovels, 
Derricks,  Elevator  Hods,  Wheelbarrows,  etc.  When 
the  equipment  is  covered  by  a  slip  for  each  kind,  assort  the 
slips  in  their  alphabetical  order  and  number  them  beginning 
at  No.  1.  Then  draw  up  a  typewritten  list  to  be  used  as  a 
reference  to  the  card  files  of  equipment  idle  and  working,  as 
they  are  filed  in  their  order  of  classification.  The  list  serves 
as  a  perfect  index  to  the  inventory. 

Charges  for  Plant  Rental. — When  the  contractor  owns 
the  equipment  and  includes  its  rental  in  the  contract  price 
the  charge  for  plant  rental  should  include  transportation, 
the  interest  on  its  cost,  and  depreciation  for  the  time  of  service, 
plus  the  cost  of  repairs  to  keep  it  efficient.  Some  contractors 
charge  for  the  value  of  the  plant  installed,  and  credit  the 
job  with  its  appraised  value  when  released  from  service, 
the  difference  between  these  two  values,  added  to  the  cost 
of  repairs  and  interest,  constituting  a  charge  to  the  job. 
This  charge  should  equal  that  of  the  above  method  for 
determining  this  cost.  When  the  plant  is  hired,  the  rental 
charge  should  equal  the  cost  of  wear  and  tear  and  interest 
on  its  cost  for  the  time  of  service,  which  amount  should 
be  spread  over  the  unit  costs  involved  in  the  estimate. 

It  would  be  safe  in  most  instances  to  compute  the  salary 
cost  of  foremen  in  charge  of  construction  at  10  per  cent  of 


CONTROL  OF  EQUIPMENT  217 

labor,  and  that  of  all  general  expense  at  6  per  cent  of  labor. 
The  estimate  should  be  increased  a  certain  percentage  to 
provide  for  contingencies  which  may  arise  from  changes  in 
the  price  of  labor  and  materials,  inefficiency  of  workmen, 
strikes,  etc.  By  comparing  past  performance,  if  records  are 
available,  with  present  requirements  it  would  be  easy  to  deter- 
mine a  percentage  figure  to  cover  unforeseen  contingencies. 

Small  Tools. — A  record  of  the  small  tools  should  be  carried 
in  the  store  room  and  controlled  on  the  General  Ledger 
by  an  inventory  account.  When  tools  are  bought,  the  cost 
is  the  amount  to  be  charged  to  inventory,  and  when 
they  are  sent  to  a  job,  a  store  room  order  should  be  issued 
and  signed  by  the  foreman,  which  record  is  the  basis  of  an 
expense  charge  to  the  job  and  a  credit  to  the  number  of  the 
Tool  Account. 

When  the  contract  is  finished,  any  tools  that  have  not 
outlived  their  usefulness,  may  be  appraised,  and  their  value 
credited  to  the  expense  of  the  contract  and  charged  back 
to  the  Tool  Account  by  the  issuance  of  a  transfer  ticket, 
the  difference  between  the  cost  and  appraised  value  being 
the  net  expense  charged  to  the  contract.  It  is  not,  however, 
the  proper  procedure  to  charge  the  reduced  value  of  the 
tools  back  to  the  inventory  account  from  which  they  were 
withdrawn  as  the  inventory  account  then  includes  a  com- 
posite value  for  old  and  new  tools.  A  better  plan  is  to  carry 
on  the  Stores  Ledger  two  tool  accounts  under  the  titles  of 
Tool  Account  New,  and  Tool  Account  Old,  and  to  store  new 
and  old  tools  in  separate  compartments. 

No  reserve  for  depreciation  is  set  up  on  the  general  books 
for  these  accounts,  as  the  difference  in  cost  and  appraisal 
value  is  covered  by  the  charge  for  tool  expenses. 


CHAPTER  XIX 
PREPARATION  OF  ESTIMATES  AND  BIDS 

Creation  of  Contract. — It  takes  two  to  make  a  contract, 
and  in  every  construction  contract  the  contractor  agrees 
to  perform  work  for  which  he  is  to  receive  from  the  owner 
a  certain  sum  of  money.  The  usual  steps  leading  to  and 
completing  a  contract  are  as  follows: 

1.  Issuance  of  plans  and  specifications. 

2.  Invitation  to  bidders. 

3.  Engineer's  estimate. 

4.  Acceptance  of  the  bid. 

5.  Signing  the  contractural  agreement. 

6.  Performing  the  work. 

7.  Final  settlement  on  approval  by  the  architect. 

8.  Release  of  the  contractor  by  the  owner. 

The  specifications  are  a  description  of  the  work  to  be 
performed  under  a  contract,  and  serve  as  a  key  to  the  plans 
as  drawn.  They  control  the  plans  in  condensed  forms, 
and  each  feature  should  be  connected  to  the  plans  by  a 
symbol  which  must  appear  on  both. 

The  contract  specifies  the  nature  and  method  of  payment 
to  be  made  to  the  contractor,  and  these  details  should  be 
noted  on  the  owrner's  account  so  that  collections  can  be 
made  accordingly. 

In  some  contracts  the  contractor  has  to  give  a  surety  for 
faithful  performance  of  the  work,  which  guarantee  is 
usually  assumed  by  a  bonding  company.  The  amount  of 
the  surety  varies,  but  it  should  be  sufficient  to  cover  any  loss 
to  the  owner  should  the  contractor  default  in  his  obligation. 
The  premium  is  part  of  the  cost  of  the  contract.  The  time 
for  completion  may  be  guaranteed  by  the  surety,  which  may 

218 


PREPARATION  OF  ESTIMATES   A\D  BJD8  219 

also  include  a  forfeiture  clause  penalizing  the  contractor 
for  exceeding  the  time  allowed  to  complete;  or  a  bonus  may 
be  paid  to  the  contractor  for  any  saving  of  time  inside  the 
limit  of  that  allowed. 

Elements  of  Cost. — In  the  preparation  of  estimates  and 
bids  for  contract  work  the  following  five  elements  of  cost 
require  careful  consideration. 

1.  Preparatory  Expense. 

2.  Plant  Supplies  and  Expense. 

3.  Materials. 

4.  Labor. 

5.  Superintendence  and  General  Expense. 

1.  Includes  clearing,  right  of  way  demolition,  salaries 
of  the  contractor's  force  on  the  site  pending  the  beginning 
of  the  actual  operations,  setting  up  plant,  advance  receipt 
of  materials,  etc.     This  expense  should  be  forecasted  and 
included  in  the  estimated  unit  cost. 

2.  Includes  depreciation  of  machinery  and  tools,  tem- 
porary structures,   insurance  of  all  property  subject  to 
fire  loss,  and  used  on  the  contract  work,  fuel,  oil,  etc.,  and 
any  other  items  not  contracted  for. 

3.  Includes  materials  to  be  used  for  actual  construction 
contracted  for  as  invoiced;  plus,  freight  in,  labor  handling, 
and  cartage  to  site;  also,  reduction  waste  from  cutting  and 
fitting  parts. 

4.  Includes  skilled  and  common  labor  applicable  to  actual 
construction  as  per  contract  specifications. 

5.  Includes  salaries  and  expenses  of  foremen,  managers, 
bookkeepers,  timekeepers,  office  clerks,  field  checkers,  rents, 
legal  fees,  taxes,  stationery,  traveling  expense,  etc. 

Points  to  Watch  in  Compiling  Estimates. — The  con- 
tractor when  making  a  bid  may  place  too  much  reliance  on 
the  cost  of  similar  work  in  localities  other  than  the  one 
where  the  job  is  to  be  carried  out.  Rates  of  wages  often 
fluctuate  widely  in  different  sections  of  the  country;  also, 
the  specifications  of  engineers  show  considerable  variation 


220  ACCOUNTING  FOR  CONTRACTORS 

on  different  jobs.  The  contractor  should  see  that  his  bid 
is  not  unbalanced,  some  items  of  the  estimate  being  too 
high,  and  others  too  low.  Also,  there  is  little  or  no  relation 
between  the  unit  cost  of  large  and  small  jobs.  Finally 
it  should  be  borne  in  mind  that  the  contractor  who  is  owner 
of  his  plant,  has  an  economic  advantage  over  a  bidder  who 
has  to  pay  rental. 

A  parallel  performance  is  a  good  guide  when  making 
an  estimate,  but  should  not  be  conformed  to  item  for  item. 
Conditions  are  likely  to  differ  greatly  between  one  big 
construction  job  and  another.  Therefore  each  item  of  the 
estimate  should  be  carefully  computed  for  the  number  of 
units  required,  so  that  when  submitting  the  bid  they  will 
be  neither  over  nor  understated. 

Ample  provision  should  be  made  when  making  the  esti- 
mate for  all  costs  other  than  those  of  the  actual  materials, 
labor,  machinery  and  supplies  used  on  the  job.  While  it 
is  important  not  to  overlook  these  items,  at  the  same  time, 
it  is  a  bad  practice  to  load  the  construction  costs  with 
an  excess  number  of  units  to  take  care  of  any  omissions  of 
non-construction  costs.  The  estimate  should  be  drawn  up 
so  accurately  that  it  will  stand  the  closest  inspection. 
There  is  then  less  likelihood  of  the  bid  being  rejected. 

Most  contractors  are  so  familiar  with  the  details  of  any 
work  they  undertake,  that  they  can  instantly  discover  an 
excessive  over-  or  under-estimate  compiled  by  the  engineer. 
Therefore  a  bid  should  never  go  out  before  first  being  sub- 
mitted to  the  contractor  for  his  scrutiny  and  approval. 
The  responsibility  for  any  error  would  then  partly  rest  on 
him. 

A  useful  aid  to  accuracy  and  dispatch  in  drawing  up 
estimates  is  a  classified  schedule  of  standardized  costs  for 
the  various  features  of  the  work  contracted  for.  Such 
standards  are  invaluable  as  a  check  on  the  estimates  before 
submitting  them,  disclosing  at  a  glance  any  omissions  and 
thereby  making  it  possible  to  render  the  bid  complete  in 
every  particular. 


PREPARATION  OF  ESTIMATES  AND  BIDS  221 

Determination  of  Plant  Expense. — When  determining 
the  plant  expense  a  liberal  allowance  should  be  made  for 
bad  weather,  late  deliveries,  break-downs,  etc.  Also  time 
limit  for  performing  the  work,  and  the  capacity  of  the 
plant  to  function  within  80  per  cent  of  the  time  should 
not  be  overlooked.  When  considering  the  capacity  of  the 
machines  comprising  the  plant  care  should  be  taken  to 
keep  within  the  limit  of  the  work  they  can  perform.  Ample 
allowance  should  be  made  for  idle  time  occasioned  by 
making  repairs. 

Estimation  of  Profit. — The  final  addition  to  an  estimate 
of  cost  is  the  contractor's  profit,  and  this  is  taken  at  a 
certain  percentage  of  the  constructive  labor  and  material 
costs.  There  is  no  standard  rate  and  whatever  the  per- 
centage it  should  be  enough  to  cover  the  overhead  expense 
of  the  contractor  applicable  to  the  contract,  leaving  a  fair 
net  return  on  the  capital  invested  in  his  business.  A 
solution  of  this  is  demonstrated  as  follows: 

Assume  that  a  contractor  does  a  business  of  $11,000,000 
for  a  year  on  an  invested  capital  of  $2,000,000  on  which 
he  anticipates  a  net  return  of  10  per  cent.  If  the  overhead 
equals  8  per  cent  of  the  annual  cost  and  includes  officers' 
salaries,  taxes,  etc.,  and  the  construction  cost  is  $10,000,000, 
the  profit  to  be  added  to  the  whole  cost  of  each  contract 
would  be  10  per  cent  as  shown  in  the  figures  below: 

Net  contract  sales $11,000,000 

Whole  cost 10,000,000 


Gross  profit  on  cost  10  per  cent. . .  . 
Less  Overhead  on  Cost  8  per  cent . . 


Net  Profit  on  cost  2  per  cent $     200,000  equal  to  10  per  cent 

on  the  invested  Capital  of  $2,000,000. 

This  shows  that  the  contractor's  overhead  is  equal  to 
8  per  cent  of  the  whole  construction  cost,  and  that  it  would 
take  2  per  cent  of  this  cost  to  provide  10  per  cent  net 
profit  on  the  capital  invested.  The  profit  added  to  the 


222  ACCOUNTING  FOR  CONTRACTORS 

whole  cost  must  be  10  per  cent  to  make  the  gross  profit  of 
$1,000,000  on  $10,000,000  cost  as  shown  on  the  proof. 
As  this  whole  cost  includes  the  16  per  cent  foremen's  wages 
and  the  general  expense  incurred  on  the  contract  and  as 
the  profit  is  measured  by  the  labor  material  and  other 
direct  costs,  the  present  worth  value  of  the  whole  cost, 
when  taken  at  100  per  cent,  and  divided  by  116,  will  give 
the  percentage  of  construction  labor,  material  and  other 
direct  costs.  By  adding  16  per  cent  to  this  cost,  it  will 
equal  100  per  cent  of  the  whole  construction  cost.  For 
example;  100  -5-  116  =  86.21  per  cent  and  86.21  X  116  = 
100  per  cent.  The  percentage  of  profit  to  be  added, 
based  on  the  direct  labor  and  material  cost  that  will  equal 
10  per  cent  of  the  whole  cost,  and  be  productive  of  an 
amount  to  provide  for  8  per  cent  overhead  and  10  per  cent 
on  the  capital  invested,  is  determined  by  dividing  10  per 
cent  by  the  present  worth  percentage  for  labor  and  material 
costs  of  86.21.  Thus  .10  4-  86.21  =  .1160  per  cent  which 
is  the  rate  to  be  added  to  the  labor  and  material  cost  to 
return  a  gross  profit  of  10  per  cent  on  sales,  provide  for  8 
per  cent  overhead,  and  10  per  cent  net  return  on  the 
capital  invested. 


CHAPTER  XX 
MUNICIPAL  CONTRACTS 

Proposals  to  Bid. — Contracts  entered  into  by  a  munici- 
pality are  of  two  classes:  (1)  Supplies  necessary  to  operate 
the  various  departments  under  municipal  control  such  as 
schools,  hospitals,  parks,  etc.,  (2)  labor  and  material  for 
construction  work  forming  capital  expenditures  of  the 
municipality. 

Vendors  and  general  contractors  are  made  cognizant 
of  these  contracts  by  means  of  advertisements  in  the  daily 
newspapers.  To  enable  those  seeking  the  contract  to  bid 
intelligently,  proposals  for  bids  are  prepared  in  the  form  of 
a  contract,  and  the  proposals  must  contain  the  following 
particulars : 

1 .  A  statement  that  the  bidder  will  furnish  the  bid  to  the  department 
head  issuing  the  contract,  and  make  the  bid  on  or  before  a  certain  day 
and  hour  named,  enclosed  in  a  sealed  envelope. 

2.  A  statement  of  the  quantity  and  quality  of  the  supplies  or  the 
nature  and  extent  of  service  to  be  rendered  as  nearly  as  it  is  possible  to 
estimate. 

The  estimates  supporting  the  bid  are  publicly  opened  at 
a  time  and  place  specified  by  the  department  head  request- 
ing the  proposal  and  the  advertisement  states  the  amount 
of  surety  required  for  the  performance  of  the  contract 
according  to  the  specifications  submitted. 

The  specifications  are  made  out  on  bid  sheets  on  which 
the  vendors  give  details  of  the  prices  at  which  they  propose 
to  furnish  the  articles.  Each  item  to  be  supplied  is  entered 
on  the  bid  sheet,  and  the  quantities  and  the  unit  price  are 
shown  and  extended  for  each  separately. 

The  municipal  department,  in  making  the  proposal  for 

223 


224  ACCOUNTING  FOR  CONTRACTORS 

contract  bids,  designates  a  certain  day  and  hour  to  consider 
them,  and  in  the  interim,  between  the  time  they  are  received 
and  the  day  they  are  to  be  passed  on,  they  are  placed  in 
an  estimate  box  which  is  under  lock  and  key.  At  the 
appointed  time  they  are  taken  from  the  box  by  the  head  of 
the  department  who  issued  the  proposal,  and  read  aloud 
before  the  officials  who  are  authorized  to  accept  the  con- 
tracts. Any  estimates  which  do  not  conform  with  the 
legal  requirements  are  rejected,  and  those  deemed  to  the 
best  interests  of  the  municipality  are  the  successful  bidders. 
At  times,  the  specifications  and  proposal  call  for  the  sub- 
mission of  samples  to  be  delivered  to  the  purchasing  agent 
before  the  opening  of  the  estimates  so  that  their  quality 
can  be  inspected  and  tested. 

Contract  Guarantees. — The  bids  must  be  accompanied 
by  the  consent  of  the  guarantor  of  the  contractor,  for  his 
execution  of  the  bond  as  required  by  law  should  the  con- 
tractor be  awarded  the  contract.  The  chief  municipal 
financial  officer,  who  is  usually  the  comptroller,  makes  final 
acceptance  of  the  surety  offered,  and  the  proper  enforcement 
of  every  contract  made  with  the  city  rests  on  the  shoulders  of 
the  officials  endowed  with  such  authority. 

If  a  contractor  fails  to  perform  the  work  according  to 
the  stipulations  of  the  contractual  agreement,  the  munici- 
pality usually  takes  the  work  out  of  his  hands  and  has  it 
completed  by  some  other  contractor.  The  cost  of  so  doing 
is  a  charge  against  the  delinquent  contractor.  Failure  to 
perform  the  contract  might  arise  from  causes  beyond  the 
contractor's  control,  such  as  labor  strikes,  bad  weather, 
etc.  If  the  contractor,  through  no  fault  of  his  own,  fails 
to  complete  the  work  within  the  limit  of  time  allowed,  the 
municipality  may  grant  an  extension. 

Municipal  Contract  Register  and  Accounting. — All  munici- 
palities operate  contract  registers  showing  the  following: 

1.  Number  of  contract. 

2.  Date  of  award. 

3.  To  whom  awarded. 


MUNICIPAL  CONTRACTS  225 

4.  Nature  of  work,  service,  or  supplies. 

5.  Estimated  cost. 

6.  Symbol  of  account  to  be  charged  or  capitalized. 

7.  Amount  accrued  and  due. 

The  contracts  are  of  two  classes:  (1)  Expense  Contracts 
and  (2)  Construction  Contract.  The  former  are  liquidated 
from  current  funds  as  determined  by  the  Municipal  Budget, 
and  the  latter  from  funds  realized  from  bond  sales  which 
are  in  the  nature  of  permanent  liabilities. 

The  Appropriation  Account  for  contracts,  as  estimated  in 
the  budget,  is  charged  each  month  for  the  amount  of 
contract  obligations  registered,  and  Contract  Reserve 
Account  Appropriations  is  charged  and  Audited  Vouchers 
Payable  credited  and  at  the  same  time  Available  Cash 
Surplus  is  credited  with  the  amount  of  vouchers  registered 
and  paid.  As  there  are  two  classes  of  expenditure  and  they 
are  made  from  separate  funds,  all  receipts  and  expenditures 
are  segregated  accordingly. 

Receipts  for  Operating  Expense  are  derived  from  the 
following  sources  and  charged  to  Available  Cash  Surplus: 

1.  Current  cash  collections. 

2.  Departmental  Accounts  Receivable  collected. 

3.  Receipts  from  licenses,  permits,  fines  and  forfeits. 

4.  Miscellaneous  cash  receipts. 

5.  Revenue  bond  sale  receipts. 

6.  Special  revenue  bond  sale  receipts. 

Available  Cash  Surplus  is  credited  with 

1.  Vouchers  payable. 

2.  Payrolls  payable. 

3.  Miscellaneous  items. 

The  first  four  items  in  the  first  list  above  constitute 
current  funds.  Capital  funds  are  derived  from  bond 
sales  from  which  the  costs  for  construction,  equipment, 
real  estate,  etc.,  are  paid. 

15 


226  ACCOUNTING  FOR  CONTRACTORS 

Specimen  Contract  Bids. — In  the  pages  to  follow  several 
specimens  are  given  of  municipal  contracts  advertised  in 
the  daily  papers  under  the  caption  " Corporation  Notices:" 

FOR  FURNISHING  AND  DELIVERING  ROPE  TO  THE  DEPARTMENT  OF 
PLANT  AND  STRUCTURES  IN  THE  BOROUGH  OF  BROOKLYN 

Sealed  bids  will  be  received  by  the  Board  of  Purchase  of  the  City  of 
New  York  at  its  office,  Room  526,  Municipal  Building,  Manhattan, 
from  9  a.m.  to  10:30  a.m.  The  time  for  the  performance  of  contracts 
is  from  October  1  to  December  31,  1920. 

The  security  required  is  thirty  per  cent  of  the  contract  amount 
awarded.  No  bid  shall  be  considered  unless  it  is  accompanied  by  a 
deposit.  Such  deposit  shall  be  in  an  amount  not  less  than  one  and 
one-half  per  cent  of  the  total  amount  of  the  bid. 

The  bidder  will  state  the  price  per  unit  as  called  for  in  the  schedules 
of  quantities  and  prices,  by  which  the  bids  will  be  tested.  The  exten- 
sions must  be  made  and  footed  up,  as  the  bids  will  be  read  from  the 
total,  and  awards,  if  made,  made  to  the  lowest  bidder  on  each  item  or 
class,  as  stated  on  the  schedules.  Bids  must  be  submitted  in  dupli- 
cate, each  copy  in  a  separate  envelope.  No  bid  will  be  accepted  unless 
this  provision  is  complied  with. 

Specifications  referred  to  in  the  schedules  may  be  had  upon  applica- 
tion at  Room  540  Municipal  Building,  Manhattan.  Blank  forms  and 
further  information  may  be  obtained  at  the  office  of  the  Board  of 
Purchase,  eighth  floor,  Municipal  Building,  Manhattan. 

Board  of  Purchase 

FOR  FURNITURE,  ETC.,  NEW  PUBLIC  SCHOOL 

The  time  allowed  to  complete  the  whole  work  on  each  item  will  be 
sixty  (60)  consecutive  working  days,  as  provided  in  the  contract. 
The  amount  of  security  required  is  as  follows: 

Item  1 $2,000  Item  4 $    600 

Item  2 300  Item  5 500 

Item  3 1,000  Item  6 1,600 

The  deposit,  accompanying  bid  on  each  item  shall  be  five  per  cent  of 
the  amount  of  security. 

A  separate  bid  must  be  submitted  for  each  item  and  separate  awards 
will  be  made  thereon. 

Blank  forms,  plans  and  specifications  may  be  obtained  or  seen  at  the 
temporary  estimating  room,  6th  floor,  Brooklyn  Branch  of  the  Board  of 
Education,  131  Livingston  St.  Brooklyn. 

Name 

Supt.  of  School  Buildings 


MUNICIPAL  COXTItACTS  227 

ABANDONED  CONTRACT 

Sealed  bids  will  be  received  by  the  Department  of  Public  Works, 
10th  floor,  Municipal  Building,  Manhattan,  until  10:30  a.m.  on  Mon- 
day, September  20,  1920,  for  furnishing  all  the  labor  and  material 
required  for  the  completion  of  the  abandoned  contract  of  Albert  Smith  & 
Co.  for  general  construction  and  electrical  work  (exclusive  of  plumbing, 
heating,  and  ventilating  work)  for  the  erection  and  completion  of  the 
new  Johnston  Hospital,  Borough  of  Brooklyn,  The  City  of  New  York. 

The  time  allowed  for  doing  and  completing  the  entire  work  and  for 
the  full  performance  of  the  contract  is  one  hundred  (100)  consecutive 
calendar  days. 

The  security  required  will  be  Two  Hundred  Thousand  Dollars 
($200,000). 

The  deposit  accompanying  bid  shall  be  five  per  cent  (5%)  of  the 
amount  of  security  required. 

The  bidder  will  state  one  aggregate  price  for  the  whole  work  described 
and  specified,  as  the  contract  is  entire,  for  a  complete  job. 

Blank  forms  and  further  information  may  be  obtained  at  the  office 
of  Jones  &  Williams,  architects,  102  Fulton  Street,  Manhattan,  where 
plans  and  specifications  may  be  seen. 

Commissioner 

For  regulating  and  repaving  with  Special  Granite  Blocks  on  present 
concrete  Foundations  of  the  following  dimensions: 

Length  on  top,  7  to  11  inches.     Width  on  top,  3%  to  4>i  inches. 

Depth  3%  to  4M  inches. 

The  Engineer's  estimate  is  as  follows: 

556  linear  feet  granite  heading  stones  set  in  concrete. 

580  linear  feet  cement  curb. 

80  cubic  yards  asphalt  pavement  (no  maintenance). 

11.142  Square  yards  special  granite  pavement,  with  joint  filler  of 
cement  grout. 

2  new  standard  iron  covers  and  heads  for  sewer  manholes. 

Time  allowed  sixty  (60)  consecutive  working  days.  Security  required, 
$25,000. 

Each  bid  must  be  accompanied  by  a  deposit  of  $1,250  in  cash  or 
certified  check  to  the  order  of  the  Comptroller  of  the  City  of  New  York. 

General  Instructions  to  Bidders. — General  instructions  to  bidders 
on  work  to  be  done  for,  or  supplies  to  be  furnished  to  the  City  of  New 
York  are  as  follows: 

The  person  or  persons  making  a  bid  for  any  service,  work,  material 
or  supplies  for  The  City  of  New  York,  or  for  any  of  its  departments, 
bureaus,  or  offices,  shall  furnish  the  same  in  a  sealed  envelope,  indorsed 
with  the  title  of  the  supplies,  material,  work  or  services  for  which  the 


228  ACCOUNTING  FOR  CONTRACTORS 

bid  is  made,  with  his  or  their  name  or  names  and  the  date  of  presenta- 
tion to  the  President  or  Board  or  the  head  of  the  Department  at  his 
or  its  office,  on  or  before  the  date  and  hour  named  in  the  advertisement 
for  the  same,  at  which  time  and  place  the  bids  will  be  publicly  opened 
by  the  President,  or  Board,  or  head  of  said  department  and  read,  and 
the  award  of  the  contract  made  according  to  law  as  soon  thereafter  as 
practical. 

Each  bid  shall  contain  the  name  and  place  of  residence  of  the  persons 
making  the  same,  and  the  names  of  all  persons  interested  with  him 
therein,  and,  if  no  other  person  be  so  interested,  it  shall  distinctly  state 
that  fact:  also,  that  it  is  made  without  any  connection  with  any  other 
person  making  a  bid  for  the  same  purpose,  and  is  in  all  respects  fair 
and  without  collusion  or  fraud,  and  that  no  member  of  the  Board  of 
Alderman,  head  of  a  department,  chief  of  a  bureau,  deputy  thereof  or 
clerk  therein,  or  other  officer  or  employee  of  The  City  of  New  York  is, 
shall  be,  or  become  interested,  directly  or  indirectly,  as  contracting 
party,  partner,  stockholder,  surety  or  otherwise  in  or  in  the  performance 
of  the  contract,  or  in  the  supplies,  work  or  business  to  which  it  relates, 
or  in  any  portion  of  the  profits  thereof.  The  bid  must  be  verified 
by  the  oath  in  writing  of  the  party  or  parties  making  the  bid  that  the 
several  matters  stated  therein  are  in  all  respects  true. 

No  bid  will  be  considered  unless,  as  a  condition  precedent  to  the  recep- 
tion or  consideration  of  such  bid,  it  be  accompanied  by  a  certified  check 
upon  one  of  the  State,  or  National  Bureau,  or  trust  companies  of  The 
City  of  New  York,  or  a  check  of  such  bank  or  trust  company  signed  by 
a  duly  authorized  officer  thereof,  drawn  to  the  order  of  the  Comptroller, 
or  money  of  corporate  stock  or  certificates  of  indebtedness  of  any 
nature  issued  by  The  City  of  New  York,  which  the  Comptroller  shall 
approve  as  of  equal  value,  with  the  security  amount  of  not  less  than 
three  nor  more  than  5  per  centum  of  the  amount  of  the  bond  required, 
as  provided  in  section  420  of  the  Greater  New  York  charter. 

All  bids  for  supplies  must  be  submitted  in  duplicate.  The  certified 
check  or  money  should  not  be  included  in  the  envelope  containing  the 
bid,  but  should  be  either  inclosed  in  a  separate  envelope  addressed  to 
the  head  of  the  Department,  President,  or  Board,  or  submitted  per- 
sonally upon  the  presentation  of  the  bid. 

For  particulars  as  to  the  quantity  or  quality  of  the  supplies,  or  the 
nature  and  extent  of  the  work,  reference  must  be  made  to  the  specifi- 
cations, schedules,  plans,  etc.,  on  file  in  the  said  office  of  the  President, 
Board,  or  Department. 

No  bid  shall  be  accepted  from,  or  contract  awarded  to,  any  person 
who  is  in  arrears  to  the  City  of  New  York  upon  debt  or  contract,  or 
who  is  a  defaulter  in  surety  or  otherwise,  upon  any  obligation  of  the 
City. 


MUNICIPAL  CONTRACTS  229 

The  contracts  must  be  bid  for  separately. 

The  right  is  reserved  in  each  case  to  reject  all  bids  if  it  is  deemed 
to  be  for  the  interest  of  the  City  so  to  do. 

Bidders  will  write  out  the  amount  of  their  bids  in  addition  to  insert- 
ing the  same  in  figures. 

Bidders  are  requested  to  make  their  bids  upon  the  blank  forms  pre- 
pared and  furnished  by  the  city,  a  copy  of  which,  with  the  proper 
envelope  in  which  to  enclose  the  bid,  together  with  a  copy  of  the  con- 
tract, including  the  specifications,  in  the  form  approved  by  the  Cor- 
poration Counsel,  can  be  obtained  upon  application  therefor  at  the 
office  of  the  Department  for  which  the  work  is  to  be  done,  or  the  sup- 
plies are  to  be  furnished. 

Plans  and  drawings  of  construction  work  may  be  seen  there. 

In  the  study  of  the  foregoing  municipal  contract  offers 
it  will  be  noticed  that  in  some  instances  the  contract 
advertised  calls  for  a  deposit  equal  to  5  per  cent  of  the 
surety  required  while  in  others  it  calls  for  1^  per  cent  of 
the  amount  of  the  contract  awarded.  It  is  obvious  that 
both  interpretations  mean  the  same  amount  of  deposit  even 
if  they  are  differently  expressed.  For  example  suppose, 
the  amount  of  the  contract  to  be  awarded  is  $100,000 
and  the  surety  required  is  30  per  cent  or  $30,000.  If 
the  deposit  required  is  5  per  cent  of  this  last  amount, 
it  would  be  $30,000  X  .05  =  $1,500,  and,  if  the  deposit 
called  for  1J£  per  cent  of  the  contract  amount  awarded,  it 
would  be  $100,000  X  .015  =  $1,500  the  same  amount  in 
both  instances.  Another  conclusion  to  be  drawn  from  the 
specimen  contracts  is  that  when  5  per  cent  of  the  surety  is 
required  as  a  deposit,  the  implication  is  that  the  contractor 
must  furnish  a  bond,  and  when  \Yi  per  cent  of  the  amount 
of  the  contract  is  required  as  a  deposit  no  bond  is  needed. 

Surety  Bonds. — Bonding  companies  insure  up  to  the  full 
contract  amount  if  so  desired,  and  the  premium  cost  ranges 
from  ?£  to  1}£  per  cent  of  the  contract  price.  If  a  con- 
tractor defaults  in  the  performance  of  the  contract  it  is 
reasonable  to  suppose  that  it  can  be  relet  to  some  other 
contractor  to  finish  without  sustaining  a  loss  above  10 
per  cent  of  the  price  originally  estimated.  On  these 


230  ACCOUNTING  FOR  CONTRACTORS 

premises  the  owner  or  municipality  letting  the  contract 
would  be  amply  protected  against  loss  by  having  the 
bond  taken  out  for  25  per  cent  of  the  contract  price,  and 
any  amount  above  that  is  unwarranted.  The  owner  has 
recourse  to  the  surety  company  for  any  damage  sustained, 
plus  expenses  and  losses  occasioned  by  the  contractor 
defaulting.  Bonds  are  issued  in  proportionate  parts  of 
a  year  and  the  premium  is  correspondingly  prorated. 
Therefore  it  is  not  compulsory  on  the  part  of  the  insured 
to  pay  a  full  year's  premium.  The  bonding  company 
charges  an  extra  premium  to  cover  a  maintenance  clause 
on  work  to  be  guaranteed  by  the  contractor,  which  may  be 
paid  separately  or  included  in  the  premium  on  the  bond. 
The  conditions  specified  in  each  individual  bond  govern 
the  rights  and  obligations  of  each  party  to  a  contract. 
Examination  of  Municipal  Contract  Accounts. — In  the 
examination  and  audit  of  the  contract  accounts  of  a 
municipality  the  following  is  an  outline  of  the  work  neces- 
sary in  connection  with  such  an  examination: 

1.  Schedule  all  contracts  awarded. 

2.  Schedule  all  bids,  both  accepted  and  rejected,  and  analyze  them 
in  groups  as  applying  to  each  contract;  then  compare  them,  and  where 
a  contract  was  not  awarded  to  the  lowest  bidder,  find  out  who  was 
authorized  to  make  the  award  and  accept  a  higher  bid. 

3.  Study  the  conditions  embodied  in  each  contract,  and  see  if  the 
work  has  been  performed  accordingly. 

4.  Compare  the  cost  for  completed  contracts  as  shown  by  each 
general  contractor  with  that  of  the  official  estimate.     This  refers  to 
other    than    lump    sum    contracts.     Scrutinize    very    thoroughly    the 
issuance  and  acceptance  of  extra  orders,  which  are  supplemental  to 
the  contract  price. 

5.  Note  carefully  the  method  of  payment  to  be  made  to  the  con- 
tractor under  the  contractural  agreement,  and  see  if  it  has  been  strictly 
adhered  to. 

6.  Delve  into  the  overhead,  i.e.,  items  of  expense  that  do  not  form 
an  actual  part  of  the  construction,  but  are  incident  thereto,  and  deter- 
mine whether  or  not  they  are  allowable,  so  that  the  contract  will  not 
be  padded  with  any  extraneous  costs. 

7.  Each  contract  should  be  captioned  according  to  the  nature  and 


MUNICH'. \L   CONTRACTS  231 

location  of  the  work,  and  then  given  a  number  symbol,  in  which  order 
they  are  scheduled;  the  schedule  also  shows  the  name  of  the  contractor. 

8.  Each  contract  must  be  analyzed  and  proven  independently,  and 
the  cost  and  fees  segregated  accordingly.     Where  the  contracts  are 
unfinished,  and  the  payments  are  subject  to  a  retention  on  the  value 
of  the  work  performed,  see  that  if  such  a  payment  be  requisitioned 
that  only  the  amount  less  retention  has  been  paid. 

9.  When  analyzing  the  cost  that  goes  into  a  contract  for  materials 
and  labor,  it  may  be  found  that  the  unit  prices  involved  are  greatly 
in  excess  of  an  honest  market  price  exacted  by  the  supplier  from  the 
contractor,  which  would  make  a  corresponding  high  price  to  the  munici- 
pality.    Where  collusive  tactics  have  been  resorted  to  between  the 
supplier  and  the  contractor  against  the  municipality,  the  contractor 
may  be  billed  at  the  exhorbitant  price  by  the  supplier  who  later  on 
rebates  the  overcharge  to  the  contractor.     Such  a  proceeding  would 
make  it  possible  for  the  contractor  to  properly  voucher  his  costs  by 
being  able  to  produce  invoices  for  material  absorbed  by  the  contract 
at  the  prices  submitted,  while  he  would  enjoy  a  further  profit  to  the 
extent  of  the  rebate.     In  addition  to  the  excess  cost  of  materials  the 
contractor  may  also  manipulate  his  labor  costs  by  either  dummy  names, 
compensated   idleness,   excess   wage  rates,   etc.     Leakages   may   also 
accrue  to  the  municipality's  disadvantage  from  lack  of  a  proper  account- 
ing for  materials  for  salvage,  which  at  times  is  junked  at  a  sacrifice  to 
the  municipality  and  at  others  it  is  stolen  whole  or  in  part. 

10.  When  a  contract  is  awarded  on  a  lump  sum  basis,  excessive 
bids  by  sub-contractors  may  be  included  in  the  general  contractors' 
bid,  and  there  may  be  collusion  between  them.  For  example,  the  sub- 
contractor may  bid  at  a  price  that  would  allow  for  a  refund  on  his  cost 
to  the  general  contractor,  and  still  return  a  profit  to  himself.  The 
possibility  of  such  collusion  should  not  be  overlooked. 

Though  the  above  methods  are  those  usually  followed  in  the  exami- 
nation and  audit  of  municipal  contracts,  they  are  of  course  applicable 
to  every  kind  of  contract.  It  follows  therefore,  that  the  various  condi- 
tions can  be  brought  to  light  only  by  going  to  the  source  of  all  the  items 
and  finding  where  they  originate.  Moreover.,  any  cost  that  goes  into 
a  contract  can  be  traced  from  its  first  to  its  final  disposition,  and  such 
being  the  case,  any  unfair  manipulation  of  its  value  is  clearly  exposed 
when  the  various  channels  through  which  it  passes  are  analyzed  accord- 
ing to  its  changes  of  ownership. 


CHAPTER  XXI 
LEGAL  ASPECTS  OF  CONTRACTS 

Contract  Defined — Elements. — The  term  "contract" 
is  difficult  to  define  exactly  and  completely.  Blackstone's 
definition,  a  common  one  but  subject  to  more  or  less  criti- 
cism, is:  An  agreement  upon  sufficient  consideration  to 
or  not  to  do  a  particular  thing.  A  definition  less  subject 
to  criticism,  that  of  Anson,  is:  An  agreement  enforceable 
at  law,  made  between  two  or  more  persons,  by  which 
rights  are  acquired  by  one  or  more  to  acts  or  forbearances 
on  the  part  of  the  other  or  others. 

From  this  second  definition,  it  is  possible  to  enumerate 
the  essential  elements  of  a  contract,  which  are: 

1.  Competent  parties. 

2.  Agreement  or  offer  and  acceptance. 

3.  Sufficient  consideration,  when  required  by  law. 

4.  Genuine  consent  or  the  absence  of  mistake,  misrepresentation, 
fraud,  duress  or  undue  influence. 

5.  A  lawful  object. 

6.  Compliance  with  the  forms  required  by  law. 

Enforceability. — The  element  of  enforceability  is  all- 
important  in  this  connection.  When  a  bargain  is  made, 
the  terms  thereof  must  be  such  that  the  bargain  can  be 
enforced,  legally,  by  one  party  against  the  other.  The 
general  duty  of  keeping  faith  is  not  recognized  except  as  a 
matter  of  mere  responsibility.  Therefore,  unless  an  agree- 
ment is  legally  enforceable,  it  is  useless;  one  party  to  the 
contract  if  a  loophole  exists,  except  in  rare  instances, 
will  not  consider  it  good  business  to  stand  firm  under  the 
moral  obligations  resting  upon  him  to  carry  his  side  of  the 
agreement  through  to  a  successful  conclusion,  and  may 

232 


LEGAL  AWECTX  Ob'  COM'KACTS  233 

repudiate  everything  that  was  said  and  to  which  the  two 
parties  had  agreed.  Those  who  wish  to  depend  upon  an 
action,  based  upon  a  promise,  will  find  it  to  their  advantage 
to  exact  an  oath  or  a  pledge  for  its  faithful  performance  or 
to  require  a  bondsman  to  go  security  for  the  proper  carrying 
out  of  the  agreement. 

Offer  and  Acceptance. — A  binding  contract  is  regularly 
constituted  when  there  has  been  a  meeting  of  the  minds 
of  the  parties  with  respect  to  their  intentions.  This  takes 
the  form  of  an  offer  and  the  acceptance  of  such  offer.  An 
acceptance  must  be  in  the  exact  terms  of  the  offer;  other- 
wise, no  more  obligation  is  created  than  if  there  had  never 
been  the  least  semblance  of  an  acceptance.  An  offer  before 
acceptance  creates  no  obligation  of  any  kind. 

An  acceptance  need  not  necessarily  be  couched  in  spoken 
or  written  words;  acts  and  signs  may,  and  constantly  do, 
signify  proposal  and  assent.  Stepping  into  a  street  car  is 
an  acceptance  of  an  offer  on  the  part  of  the  street  railway 
company  to  carry  you  a  certain  distance  for  a  consideration 
— the  fare.  Acts  conveying  to  a  reasonable  man  the 
proposal  of  an  agreement  or  the  acceptance  of  a  proposal 
he  has  made,  are  as  good  in  law  as  equivalent,  express 
words. 

Implied  Contract — Quasi-Contract. — In  the  above  con- 
nection, the  term  "implied  contract "  is  current  but  at  times, 
unfortunately,  its  meaning  is  ambiguous.  Sometimes  the 
term  refers  to  a  contract  concluded  by  acts,  not  words, 
of  one  or  of  both  parties.  Again,  it  may  refer  to  an  obliga- 
tion imposed  by  law,  where  no  agreement  exists  in  fact. 
In  the  latter  event,  the  name  "  quasi-contract "  is  more 
appropriate. 

Intention. — A  contract  obligation  is  one  created  and 
determined  by  the  will  of  the  parties  thereto.  If  the 
agreement  has  been  reduced  to  writing,  the  written  docu- 
ment takes '  precedence  over  all  former  oral  agreements 
and  negotiations.  Oral  testimony  will  not  be  permitted 
to  vary  the  terms  of  an  agreement  reduced  to  writing. 


234  ACCOUNTING  FOR  CONTRACTORS 

The  intention  of  the  parties  is  deduced  from  the  written 
expression  of  such  intention.  If  such  written  intention  is 
obscure  and  indefinite,  the  Courts  will  read  into  the 
agreement  the  intention  of  the  parties  thereto,  basing  such 
interpretation  upon  the  legal  rules  set  down  to  govern 
such  cases. 

Everyone  knows  that  the  application  of  the  basic  princi- 
ple of  intention  is  not  always  obvious.  Therefore,  when 
making  a  contract  one  should  determine  specifically  what 
the  intentions  of  the  interested  parties  are,  and  then  express 
such  intentions  in  clear,  simple  English.  Every  possible 
point  of  controversy  should  be  covered;  nothing  should 
be  left  to  chance,  and  one  should  never  work  on  the  prin- 
ciple that  the  other  fellow  is  an  honest  man.  He  may  be 
honest;  and  you  may  assume  that  he  is  but  one  should 
secure  protection,  first,  last,  and  all  the  time. 

Even  under  such  circumstances,  possibilities  may  arise, 
hitherto  uncontemplated.  The  law  may  even  have  to 
step  in  to  fill  up  the  gaps  by  judicial  conjecture.  In 
such  event,  the  guiding  principle  still  is,  or  ought  to  be, 
the  consideration  of  what  each  party  has  given  the  other 
reasonable  cause  to  expect.  The  Courts  aim  not  at  impos- 
ing terms  on  the  parties  but  at  fixing  the  unexpressed  terms, 
as  the  parties  themselves  would  have  done,  or  reasonably 
might  have  done,  had  they  placed  themselves  on  record 
concerning  them. 

Every  contracting  party  is  bound  to  perform  his  promise, 
according  to  the  terms  of  such  promise,  and,  in  case  of 
doubt,  he  is  obliged  to  perform  it  in  the  sense  in  which  the 
other  party  would  reasonably  understand  the  promise. 

Consideration. — In  the  law  of  contract,  a  consideration 
may  be  defined  as  something  that  has  value  in  the  eyes  of 
the  law.  It  need  not  be  money  or  goods.  A  promise  is 
a  valuable  consideration;  so  also  is  forbearance  to  do 
something  which  one  is  entitled  to  do.  The  consideration 
need  not  be  adequate,  so  long  as  it  has  some  value.  Thus 
the  sale  of  valuable  goods,  for  a  consideration  of  one 


LEGAL  ASPECTS  OF  CONTRACTS  235 

dollar,  is  a  contract  supported  by  a  valuable  consideration. 
The  consideration  must  be  legal;  the  doing  or  the  promise 
to  do,  an  illegal  act  can  never  be  a  valid  consideration  for  a 
contract.  The  consideration  must  be  present  or  future; 
it  can  never  be  past. 

Agent  and  Principal. — In  general,  whatever  a  man  may 
do  in  his  own  right,  he  may  do  by  an  agent.  Any  person 
legally  competent  to  make  contracts  may  act  through  an 
agent.  But,  the  same  qualifications  are  not  required  for 
agents  as  are  required  for  principals.  As  a  general  rule,  any 
person  of  sound  mind  may  become  agent  for  another. 
An  infant,  for  example,  may  not  appoint  an  agent;  but, 
except  he  be  of  tender  years,  he  may  become  an  agent  and 
a  contract  made  by  him  in  this  capacity  will  be  binding 
upon  his  principal. 

Before  entering  specifically  upon  a  discussion  of  con- 
struction contracts,  it  is  well  to  point  out  a  few  important 
principles  governing  the  relationship  of  principal  and  agent. 
These  may  be  enumerated  as  follows: 

1.  When  an  agent  makes  a  contract  in  the  name  of  his  principal, 
and  signs  himself  as  agent  only,  he  drops  out  of  the  transaction,  as 
soon  as  the  contract  is  made.     Only  the  principal  and  the  third  party 
may  sue  and  be  sued  upon  the  agreement.     However,  if  the  agent 
contracts  in  his  own  name,  as  often  is  the  case,  he  is  an  interested  party 
in  the  contract. 

2.  When  an  agent  contracts  for  a  principal,  without  disclosing  the 
latter's  name,  the  third  party,  upon  discovering  the  principal,  may 
elect  whether  he  will  hold  the  agent  or  the  principal  to  the  agreement. 
The  principal  may  sue  upon  the  contract;  the  agent  may  do  likewise, 
unless  the  principal  first  intervenes. 

3.  If  the  agent  has  been  permitted  by  the  principal  to  hold  him- 
self out  as  principal,  and  the  third  party  dealt  with  the  agent  in  the 
belief  that  the  latter  was  the  principal,  the  third  party  may  set  up, 
in  an  action  by  the  principal  against  him,  any  defense  that  he  had 
against  the  agent,  had  the  latter  brought  suit  in  his  own  name  as 
principal  against  the  third  party. 

4.  The  agent  who  acts  as  a  foreign  principal  is  always  personally 
liable,  unless  the  third  party  specifically  agrees  to  look  only  to  the 
principal. 


236  ACCOUNTING  FOR  CONTRACTORS 

Damages. — When  a  breach  of  contract  occurs,  the  party 
who  suffers  thereby  has  certain  remedies  that  he  may 
enforce  against  the  guilty  person.  These  are  as  follows: 

1.  In  certain  limited  cases,  he  may  compel  a  specific  performance  of 
the  contract;  or 

2.  He  may  sue  for  damages  caused  by  the  breach. 

The  measure  of  damages,  generally  speaking,  is  the  sum 
necessary  to  place  the  aggrieved  party  in  the  same  position 
he  would  have  been  in,  had  the  contract  been  fully  per- 
formed. If  a  breach  of  contract  is  proved,  but  the  ag- 
grieved has  suffered  no  real  damage,  he  is  entitled  to  have 
his  legal  right  recognized  by  the  award  of  what  are 
called  "nominal  damages."  Nominal  damages  constitute 
a  sum  just  sufficient  to  carry  a  judgment  in  favor  of  the 
damaged  party  for  the  infraction  of  his  legal  rights.  Such  a 
decision  has  the  practical  effect  of  assessing  the  costs  of 
the  suit  against  the  technical  wrong-doer.  Interest  is  at  the 
discretion  of  the  court. 

Assumpsit. — "Assumpsit"  may  be  defined  as  an  action 
for  the  recovery  of  damages  by  reason  of  breach  or  non- 
performance  of  a  contract,  whether  the  contract  is  expressed 
or  implied,  oral  or  written. 


APPENDIX 

The  forms  which  follow,  show  the  kind  of  contractual 
agreement  that  are  in  most  instances  made  between  the 
owner  who  contemplates  the  erection  of  a  building  and  his 
contractor  who  is  to  perform  the  work.  The  terms  of 
compensation  to  be  paid  the  contractor  by  the  owner  are 
as  follows:  (1)  Lump  Sum;  (2)  Cost,  Plus  a  Fixed  Fee;  (3) 
Cost,  Plus  a  Percentage. 


237 


238  ACCOUNTING  FOR  CONTRACTORS 


THIS  AGREEMENT,  made  the day  of 

in  the  year  one  thousand  nine  hundred  and by  and  between 

party  of  the  first  part  (hereinafter  designated  the  Contractor .  . )  and 

party  of    the    second    part    (hereinafter  designated   the   Owner..), 

WITNESSETH  that  the  Contractor.  .,  in  consideration  of  the  agree- 
ments herein  made  by  the  Owner.  .,  agree  with  the  Owner. .  as 
follows: 

Section  1. — The  Contractor.  .  shall  and  will  provide  all  the  materials 
and  perform  all  the  work  for  the 

as  shown  on  the  drawings  and  described  in  the  specifications  pre- 
pared by  Architect,  which 

drawings  and  specifications  are  identified  by  the  signatures  of  the 
parties  hereto,  and  become  hereby  a  part  of  this  contract. 

Section  2. — It  is  understood  and  agreed  by  and  between  the  parties 
hereto  that  the  work  included  in  this  contract  is  to  be  done  under 
the  direction  of  the  said  Architect,  and  that  his  decision  as  to  the 
true  construction  and  meaning  of  the  drawings  and  specifications 
shall  be  final.  It  is  also  understood  and  agreed  by  and  between  the 
parties  hereto  that  such  additional  drawings  and  explanations  as 
may  be  necessary  to  detail  and  illustrate  the  work  to  be  done  are  to 
be  furnished  by  said  Architect,  and  they  agree  to  conform  to  and  abide 
by  the  same  so  far  as  they  may  be  consistent  with  the  purpose  and 
intent  of  the  original  drawings  and  specifications  referred  to  in 
Section  1. 

It  is  further  understood  and  agreed  by  the  parties  hereto  that 
any  and  all  drawings  and  specifications  prepared  for  the  purposes 
of  this  contract  by  the  said  Architect  are  and  remain  his  property, 
and  that  all  charges  for  the  use  of  the  same,  and  for  the  services 
of  said  Architect,  are  to  be  paid  by  the  said  Owner. . . 

Section  3. — No  alterations  shall  be  made  in  the  work  except  upon 
written  order  of  the  Architect;  the  amount  to  be  paid  by  the  Owner.  . 
or  allowed  by  the  Contractor . .  by  virtue  of  such  alteration  to  be  stated 
in  said  order.  Should  the  Owner.  .  and  Contractor.  .  not  agree  as  to 
amount  to  be  paid  or  allowed,  the  work  shall  go  on  under  the  order 
required  above,  and  in  case  of  failure  to  agree,  the  determination 
of  said  amount  shall  be  referred  to  arbitration  as  provided  for  in 
Section  12  of  this  contract. 


FORM  44. — Building  Agreement — Lump  Sum. 


APPENDIX  239 


Section  4. — The  Contractor.  .  shall  provide  sufficient,  safe  and 
proper  facilities  at  all  times  for  the  inspection  of  the  work  by  the 
Architect  of  his  authorized  representatives,  shall,  within  twenty-four 
hours  after  receiving  written  notice  from  the  Architect  to  that  effect, 
proceed  to  remove  from  the  grounds  or  buildings  all  materials  con- 
demned by  him,  whether  worked  or  unworked,  and  to  take  down  all 
portions  of  the  work  which  the  Architect  shall  by  like  written  notice 
condemn  as  unsound  or  improper,  or  as  in  any  way  failing  to  conform 
to  the  drawings  and  specifications  and  shall  make  good  all  work 
damaged  or  destroyed  thereby. 

Section  5. — Should  the  Contractor. .  at  any  time  refuse  or  neglect 
to  supply  a  sufficiency  of  properly  skilled  workmen,  or  of  materials 
of  the  proper  quality,  or  fail  in  any  respect  to  prosecute  the  work 
with  promptness  and  diligence,  or  fail  in  the  performance  of  any  of 
the  agreements  herein  contained,  such  refusal,  neglect  or  failure 
being  certified  by  the  Architect,  the  Owner. .  shall  be  at  liberty, 
after  three  day's  written  notice  to  the  Contractor.  .,  to  provide  any 
such  labor  or  materials,  and  to  deduct  the  cost  thereof  from  any 
money  then  due  or  thereafter  to  become  due  to  the  Contractor. . 
under  this  contract;  and  if  the  Architect  shall  certify  that  such  refusal, 
neglect  or  failure  is  sufficient  ground  for  such  action,  the  Owner. . 
shall  also  be  at  liberty  to  terminate  the  employment  of  the  Con- 
tractor. .  for  the  said  work  and  to  enter  upon  the  premises  and  take 
possession,  for  the  purpose  of  completing  the  work  included  under 
this  contract,  of  all  materials,  tools  and  appliances  thereon,  and  to 
employ  any  other  person  or  persons  to  finish  the  work,  and  to  provide 
the  materials  therefor;  and  in  case  of  such  discontinuance  of  the 
employment  of  the  Contractor .  . ,  shall  not  be  en- 
titled to  receive  any  further  payment  under  this  contract  until  the 
said  work  shall  be  wholly  finished,  at  which  time,  if  the  unpaid  balance 
of  the  amount  to  be  paid  under  this  contract  shall  exceed  the  expense 
incurred  by  the  Owner.  .  in  finishing  the  work,  such  excess  shall  be 
paid  by  the  Owner .  . ,  to  the  Contractor .  . ;  but  if  such  expense  shall 
exceed  such  unpaid  balance,  the  Contractor.  .  shall  pay  the  differ- 
ence to  the  Owner.  .  The  expense  incurred  by  the  Owner. .  as  herein 
provided,  either  for  furnishing  materials  or  for  finishing  the  work, 
and  any  damage  incurred  through  such  default,  shall  be  audited  and 
certified  by  the  Architect,  whose  certificate  thereof  shall  be  con- 
clusive upon  the  parties. 

Section  6. — The  Contractor.  .  shall  complete  the  several  portions 
and  the  whole  of  the  work  comprehended  in  this  Agreement  by 


FORM  44. — Building  Agreement — Lump  Sum.     (Continued.) 


240  ACCOUNTING  FOR  CONTRACTORS 


and  at  any  time  or  times  hereinafter  stated,  to  wit: 


Section  7.— jShould  the  Contractor.  .  be  delayed  in  the  prosecu- 
tion or  completion  of  the  work  by  the  act,  neglect  or  default  of  the 
Owner.  .,  of  the  Architect,  or  any  other  contractor  employed  by  the 
Owner.  .  upon  the  work,  or  by  any  damage  caused  by  fire  or  other 
casualty  for  which  the  Contractor.  .  not  responsible,  or  by  combined 
action  of  workmen  in  no  wise  caused  by  or  resulting  from  default 
or  collusion  on  the  part  of  the  Contractor .  . ,  then  the  time  herein 
fixed  for  the  completion  of  the  work  shall  be  extended  for  a  period 
equivalent  to  the  time  lost  by  reason  of  any  or  all  the  causes  aforesaid, 
which  extended  period  shall  be  determined  and  fixed  by  the  Architect; 
but  no  allowance  shall  be  made  unless  a  claim  therefor  is  presented 
in  writing  to  the  Architect  within  forty-eight  hours  of  the  occurrence 
of  such  delay: 

Sections. — The  Owner.  .  agree. .  to  provide  all  labor  and  materials 
essential  to  the  conduct  of  this  work  not  included  in  this  contract 
in  such  manner  as  not  to  delay  its  progress  and  in  the  event  of  failure 

so  to  do,  thereby  causing  loss  to  the  Contractor .  . ,  agree .  .  that 

will  reimburse  the  Contractor.  .  for  such  loss:  and  the  Contractor.  . 

agree .  .  that  if shall  delay  the  progress  of  the  work  so 

as  to  cause  loss  for  which  the  Owner.  .   shall  become  liable,  then 

shall  reimburse  the  Owner.  .  for  such  loss.     Should  the 

Owner.  .  and  Contractor.  .  fail  to  agree  as  to  the  amount  of  loss 
comprehended  in  this  Section,  the  determination  of  the  amount  shall 
be  referred  to  arbitration  as  provided  in  Section  12  of  this  contract. 

Section  9. — It  is  hereby  mutually  agreed  between  the  parties  here- 
to that  the  sum  to  be  paid  by  the  Owner. .  to  the  Contractor.  .  for 

said  work  and  materials  shall  be 

subject  to  additions  and  deductions  as  hereinbefore  provided,  and 
that  such  sum  shall  be  paid  by  the  Owner .  .  to  the  Contractor .  . , 
in  current  funds,  and  only  upon  certificates  of  the  Architect,  as 
follows: 


The  final  payment  shall  be  made  within   days 

after  the  completion  of  the  work  included  in  this  contract,  and  all 
payments  shall  be  due  when  certificates  for  the  same  are  issued.  If 
at  any  time  there  shall  be  evidence  of  any  lien .  .  or  claim .  .  for  which, 
if  established,  the  Owner.  .  of  the  said  premises  might  become  liable, 
and  which  is  chargeable  to  the  Contractor. .,  the  Owner. .  shall  have 


FORM  44. — Building  Agreement — Lump  Sum.     (Continued.) 


APPENDIX  241 


the  right  to  retain  out  of  any  payment  then  due  or  thereafter  to 

become  due  an  amount  sufficient  to  completely  indemnify 

against  such  lien .  .  or  claim .  .  Should  there  prove  to  be  any  such 
claim.  .  after  all  payments  are  made,  the  Contractor.  .  shall  refund 
to  the  Owner.  .  all  moneys  that  the  latter  may  be  compelled  to  pay 
in  discharging  any  lien . .  on  said  premises  made  obligatory  in  conse- 
quence of  the  Contractor.  .  default. 

Section  10. — It  is  further  mutually  agreed  between  the  parties 
hereto  that  no  certificate  given  or  payment  made  under  this  contract* 
except  the  final  certificate  or  final  payment,  shall  be  conclusive  evi- 
dence of  the  performance  of  this  contract,  either  wholly  or  in  part, 
and  that  no  payment  shall  be  construed  to  be  an  acceptance  of 
defective  work  or  improper  materials. 

Section  11. — The  Owner.  .  shall  during  the  progress  of  the  work 
maintain  insurance  on  the  same  against  loss  or  damage  by  fire, .... 


the  policies  to  cover  all  work  incorporated  in  the  building,  and  all 
materials  for  the  same  in  or  about  the  premises,  and  to  be  made 
payable  to  the  parties  hereto,  as  their  interest  may  appear. 

Section  12. — In  case  the  Owner.  .  and  Contractor.  .  fail  to  agree 
in  relation  to  matters  of  payment,  allowance  or  loss  referred  to  in 
Sections  3  or  8  of  this  contract,  or  should  either  of  them  dissent  from 
the  decision  of  the  Architect  referred  to  in  Section  7  of  this  contract, 
which  dissent  shall  have  been  filed  in  writing  with  the  Architect 
within  ten  days  of  the  announcement  of  such  decision,  then  the 
matter  shall  be  referred  to  a  Board  of  Arbitration  to  consist  of  one 
person  selected  by  the  Owner.  .,  and  one  person  selected  by  the 
Contractor.  .,  these  two  to  select  a  third.  The  decision  of  any  two 
of  this  Board  shall  be  final  and  binding  on  both  parties  hereto.  Each 
party  hereto  shall  pay  one-half  of  the  expense  of  such  reference. 


The  said  parties  for  themselves,  their  heirs,  successors,  executors, 
administrators  and  assigns,  do  hereby  agree  to  the  full  performance 
of  the  covenants  herein  contained. 

IN  WITNESS  WHEREOF,  the  parties  to  these  presents  have 
hereunto  set  their  hands  and  seals,  the  day  and  year  first  above 
written. 


In  presence  of 
In  presence  of 


FORM  44. — Building  Agreement — Lump  Sum.     (Concluded.) 
16 


242  ACCOUNTING  FOR  CONTRACTORS 


THIS  AGREEMENT,  made  this day  of 

191 .  . ,  by  and  between   Company,  a 

corporation  organized  and  existing  under  the  laws  of  the  State  of 

party  of  the  first  part,  hereinafter  called  the 

"Company,"  and  the Company,  a  corporation  organized 

and  existing  under  the  laws  of  the  State  of ,  party  of  the 

second  part,  hereinafter  called  the  "  Contractor," 

WHEREAS,  the  Company  desires  to  have  constructed 


in  accordance  with  plans  and  specifications  prepared  by  the  engineer 

of ,  identified  by  the  signatures 

of  the  parties  hereto  and  made  a  part  hereof  and 

WHEREAS,  the  Contractor  is  desirous  of  performing  this  work 
under  the  terms  and  conditions  hereinafter  outlined, 

NOW,  THEREFOR,  the  parties  to  this  agreement,  each  in  con- 
sideration of  the  covenants  and  agreements  on  the  part  of  the  other 
herein  contained,  do  hereby  covenant  and  agree  as  follows: 

1. — The  Contractor  shall  act  as  agent  for  the  Company  hi  exe- 
cuting the  work  as  outlined  herein,  in  accordance  with  plans  and  speci- 
fications above  referred  to. 

2. — The  Company  will 

It  is  further  understood  and  agreed  that  the  work  to  be  done  by  the 
Company  will  be  done  without  interference  with  the  work  herein 
agreed  to  be  done  by  the  Contractor. 

3. — In  consideration  of  the  faithful  performance  of  the  covenants 
and  agreements  made  by  the  Contractor,  the  Company  hereby 
covenants  and  agrees  to  pay,  or  cause  to  be  paid  to  the  Contractor, 
an  amount  equal  to  the  "cost  of  the  work,"  as  hereinafter  defined, 

plus  a  fee  of   Dollars, 

($ ),  subject  to  the  conditions  set  forth  in  Article 

No.  8. 

4. — It  is  understood  and  agreed  by  the  parties  hereto  that  the 
term  "cost  of  the  work"  shall  include  all  expenses  of  whatsoever 
nature  incurred  by  the  Contractor  in  connection  with  this  work, 
excepting  cost  of  maintenance  of  Contractor's  main  office  in  New 
York.  The  said  costs  would  include: 

(a)  All  labor  and  materials,  both  for  temporary  and  permanent 
work,  including  camp  and  other  temporary  buildings. 


FORM  45. — Building  Agreement — Cost  Plus  a  Fee. 


M'I'ENDIX  £43 


(b)  The  cost  of  transportation  of  all  plant  (including  that  furnished 
by  the  Contractor)  to  and  from  the  site  of  the  work,  the  said  costs 
to  include  freight,  trucking  and  the  loading  and  unloading  of  plant 
at  the  Contractor's  Yard  and  at  the  site  of  the  work. 

(c)  All  necessary  repairs  to  plant  while  on  the  work. 

(d)  The  transportation  and  traveling  expenses  of  all  men  to  and 
from  the  site  of  the  work,  including  the  traveling  expenses  of  officers 
or  engineers  of  the  Contractor  when  their  services  are  required  on 
the  work. 

(e)  All  expenses  of  superintendents,  including  time-keepers  and 
clerks,  but  not  including  any  charge  for  services  rendered  by  the 
officers  or  engineers  of  the  Contractor  from  its  New  York  office. 

(f)  The  cost  of  the  installation,  maintenance  and  dismantling  of 
plant,  pipe  lines,  etc.,  at  the  site  of  the  work. 

(g)  The  cost  of  all  supplies  including  any  equipment  not  furnished 
by    the    Contractor    as    hereinafter    mentioned,    wire    and    Manila 
rope,  blocks  and  tackle,  hand  tools,  piping,  steam  and  air  hose,  fuel, 
oil,  waste,  caisson  shafts,  ladders,  etc.,  any  salvage  on  same  at  the 
completion  of  the  work  to  be  credited  to  the  cost  of  the  work. 

(h)  The  cost  of  running  the  camp  in  excess  of  receipts  from  same. 

(i)  The  expenses  of  the  local  office,  on  the  work,  of  the  Contractor, 
including  telegrams,  telephone,  express,  postage,  etc. 

(j)  The  cost  of  the  necessary  liability  insurance  to  protect  both 
the  Company  and  the  Contractor  from  loss  by  reason  of  damages 
to,  or  injuries  sustained  by  the  public  or  workmen  while  engaged  on 
the  work,  and  costs  of  all  damages  in  excess  of  liability  insurance. 

(k)  The  cost  of  any  legal  expenses  and  the  rental  of  any  property 
necessary  for  the  prosecution  of  the  work. 

5. — The  Contractor  will  furnish  without  charge  other  than  the 
fee  hereinbefore  provided  for,  its  business  system,  its  engineering 
skill  and  experience,  its  patent  methods  and  patent  rights  in  its 
appliances,  its  skilled  organization,  and  generally,  its  ability  to  equip 
the  work  with  efficient  plant,  and  to  organize  the  job  with  men 
experienced  in  this  class  of  work,  and  to  construct,  expeditiously 
and  successfully,  work  of  this  nature.  The  Contractor  will  also 
furnish  without  additional  charge,  the  heavier  items  of  plant  required 
in  connection  with  the  work — such  plant  consisting  of  air  com- 
pressors, air  locks,  receiver  and  cooler,  derricks,  hoisting  engines, 
concrete  mixer,  caisson  buckets  and  boilers  (State  specific  items). 


FORM  45. — Building  Agreement — Cost  Plus  a  Fee.     (Continued.) 


244  A('( '(>('. \r-I.\G  FOli  CUXTKACTORS 


6. — It  is  understood  and  agreed  that  the  Contractor  shall  pur- 
chase, for  the  account  of  the  Company,  all  supplies  and  materials, 
etc.,  required  in  cqnnection  with  the  work,  except  such  as  the  Com- 
pany may  wish  to  purchase  itself,  shall  duly  approve  bills  for  same 
for  payment,  and  shall  then  forward  them  to  the  Company  for  pay- 
ment, and  the  Company  agrees  that  it  will  make  payment  for  such 
bills  direct  to  the  individuals  or  firms  from  which  the  materials  or 
supplies  were  purchased.  Expenditures  made  by  the  Contractor 
on  account  of  the  work  shall  be  reimbursed  as  follows:  On  the 
first  (1st)  and  fifteenth  (15th)  days  of  each  month,  the  Contractor 
shall  furnish  to  the  Company  a  statement  of  the  expenditures  made 
by  it  during  the  preceding  two  weeks'  period  on  account  of  the  work, 
rendering  prqper  vouchers  therefor,  and  the  Company  agrees  that 
within  five  (5)  days  of  the  receipt  of  such  statement  from  the  Con- 
tractor, it  will  pay  the  Contractor  the  amount  of  such  statements. 
The  Company  further  agrees  that  between  the  first  (1st)  and  fifth 
(5th)  days  of  each  month  it  will  pay  or  cause  to  be  paid  to  the  Con- 
tractor on  account  of  the  fee  herein  agreed  upon per 

cent,  of  the  fee  mentioned  in  Article  No.  3  (until per 

cent,  of  the  fee  has  been  paid  to  the  Contractor),  for  the  work  done 
by  it  during  the  preceding  month,  and  will  pay  or  cause  to  be  paid 
within  thirty  (30)  days  after  the  completion  of  the  work,  the  rest 
of  the  fee,  if  any,  due  to  the  Contractor. 

7. — The  Contractor  shall  afford  sufficient  facilities  to  the  author- 
ized representatives  of  the  Company  for  the  inspection  of  said  work 
and  materials. 

8. — The  Contractor  guarantees  to  the  extent  of  this  fee,  that 
the  cost  of  the  work,  including  this  fee,  shall  not  exceed  the  sum  of 

$ ,  but  the  parties  hereto  agree  in  the  event  of  the 

cost,  including  the  fee  to  the  Contractor,  being  less  than  $ , 

that  any  sum  which  may  be  saved  on  such  cost,  under  the  said  sum 

of  $ ,  shall  be  divided  equally  between  the  parties 

hereto;  and  the  parties  hereto  further  agree  in  the  event  of  the  cost, 

including  the  fee   of  $ to   the   Contractor,   being 

over  $ ,  the   Contractor  shall  pay    one-half    of 

said   cost  in  excess  of  such  sum  of  $ ,  until  the 

amount  which  it  may  be  called  upon  to  pay  shall  equal  $ 

when  further  payments  on  the  part  of  the  Contractor,  on  account 
of  such  extra  cost,  shall  cease.  Payments  of  extra  fee  to  the  Contractor 
by  the  Company,  or  rebate  in  fee  by  the  Contractor  to  the  Com- 
pany, as  provided  in  this  clause,  to  be  made  at  the  time  of  final  pay- 
ment referred  to  in  Article  No.  6. 


FORM  45. — Building  Agreement — Cost  Plus  a  Fee.     (Continued.) 


.1 /•/'/•:  .v/;/.v  245 


9. — Should  the  Contractor  at  any  time  during  the  progress  of 
the  work  refuse  or  neglect  to  supply  a  sufficiency  of  materials  of 
proper  quality,  or  of  competent  workmen,  or  cause  any  unreason- 
able neglect  or  suspension  of  work,  or  fail  or  refuse  to  comply  with 
any  of  the  articles  of  this  agreement,  the  Company  shall  be  at  liberty, 
after  giving  ten  (10)  days'  written  notice  to  the  Contractor,  to 
terminate  this  contract,  and  in  that  event,  the  Company  shall  pay 
to  the  Contractor  the  cost  of  the  work  as  defined  in  Paragraph 
No.  4,  plus  such  portion  of  the  fee  mentioned  in  Article  No.  3  as  may 
be  due,  as  provided  in  Article  No.  6,  up  to  the  date  on  which  the  ten 
(10)  days'  notice,  heretofore  described,  expires.  In  case  the  con- 
tract is  terminated  before  completion,  Article  No.  8  will  be  disre- 
garded by  both  parties  in  adjusting  final  payment.  Upon  such 
payment  being  made,  by  the  Company  to  the  Contractor,  this  con- 
tract shall  thereupon  be  terminated. 

10. — The  Contractor  agrees  to  take  out  and  maintain  at  all 
times  during  the  course  of  said  work  liability  insurance  in  amounts 
to  be  approved  by  the  Company,  to  protect  said  Company  and  Con- 
tractor from  loss  by  reason  of  damage  to,  or  injuries  sustained  by, 
the  public  or  workmen  while  engaged  on  the  work. 

11. — The  conditions  of  this  contract  shall  be  binding  on  the  suc- 
cessors and  assigns  of  the  parties  hereto,  but  no  assignment  hereof 
shall  be  made  nor  sub-contract  let  by  the  Contractor  without  the 
written  consent  of  the  Company. 

12. — The  Company  shall  furnish  the  Contractor  free  of  charge 
such  permits  as  may  be  required  for  the  prosecution  of  the  work. 

IX  WITNESS  WHEREOF,  the  said  parties  have  hereunto  set  their 
hands  and  seals  as  of  the  day  and  year  first  above  written. 


(Company) 

Witness:  By 


Witness:  By 

(Contractor) 


FORM  45. — Build.'n^  Agreement — Cost  Plus  a  Fee.     (Concluded. 


246  ACCOUNTING  FOR  CONTRACTORS 

THIS  AGREEMENT,  made  this  day  cf 

,  191 .  . ,  by  and  between  The 

Company,  a  corporation  organized  and  existing  under  the  laws  of 
the  State  of  ,  party  of  the  first  part,  herein- 
after called  the  "Company, "  and  The 

Company,  a  corporation  organized  and  existing  under  the  laws  of 

the  State  of  ,  party  of  the  second  part, 

hereinafter  called  the  "Contractor," 

WITNESSETH 

WHEREAS,  the  Company  desires  to  have  constructed 

in  accordance  with  plans  and  specifications  prepared  by  the 

Engineer  of  the 

identified  by  the  signatures  of  the  parties  hereto  and  made  a  part 
hereof,  and 

WHEREAS,  the  Contractor  is  desirous  of  performing  this  work 
under  the  terms  and  conditions  hereinafter  outlined. 

NOW,  THEREFORE,  the  parties  to  this  agreement,  each  in  con- 
sideration of  the  covenants  and  agreements  on  the  part  of  the  other 
herein  contained,  do  hereby  covenant  and  agree  as  follows: 

1. — The  Contractor  shall  act  as  agent  for  the  Company  in  exe- 
cuting the  work  as  outlined  herein,  in  accordance  with  plans  and 
specifications  above  referred  to. 


2. — The  Company  will 


It  is  further  understood  and  agreed  that  the  said  work  shall  be  done 
by  the  Company  without  interference  with  the  work  herein  agreed 
to  be  done  by  the  Contractor. 

3. — In  consideration  of  the  faithful  performance  of  the  covenants 
and  agreements  made  by  the  Contractor,  the  Company  hereby 
covenants  and  agrees  to  pay,  or  cause  to  be  paid  to  the  Contractor, 
an  amount  equal  to  the  "cost  of  the  work"  as  hereinafter  defined, 

plus  a  commission  of per  cent.  ( %)  of 

said  cost  as  compensation  for  the  services  of  the  Contractor. 

FORM  46. — Building  Agreement — Percentage  Basis. 


M'l'ENDIX  247 


4. — It  is  understood  and  agreed  by  the  parties  hereto  that  the 
term  "cost  of  the  work"  shall  include  all  expenses  of  whatsoever 
nature  incurred  by  the  Contractor  in  connection  with  this  work, 
excepting  cost  of  maintenance  of  Contractor's  executive  main  office 
in  The  said  costs  would  include: 

(a)  All  labor  and  materials,  both  for  temporary  and  permanent 
work,  including  camp  and  other  temporary  buildings. 

(b)  The  cost  of  transportation  of  all  plant  (including  that  furnished 
by  Contractor)  to  and  from  the  site  of  the  work,  the  said  costs  to 
include  freight,  trucking  and  the  loading  and  unloading  of  plant  at 
the  Contractor's  yard  and  at  the  site  of  the  work. 

(c)  All  necessary  repairs  to  plant  while  on  the  work. 

(d)  The  transportation  and  traveling  expenses  of  all  men  to  and 
from  the  site  of  the  work,  including  the  traveling  expenses  of  officers 
or  engineers  of  the  Contractor  when  their  services  are  required  on 
the  work. 

(e)  All   expenses   of  superintendents,    including  timekeepers   and 
clerks,  but  not  including  any  charge  for  services  rendered  by  the 
officers  or    engineers    of    the    Contractor   from  its  main  executive 
office. 

(f)  The  cost  of  the  installation,  maintenance  and  dismantling  of 
plant,  pipe  lines,  etc.,  at  the  site  of  the  work. 

(g)  The  cost  of  all  supplies,  including  any  equipment  not  furnished 
by  the  Contractor  as  hereinafter  mentioned,  wire  and  Manila  rope, 
blocks  and  tackle,  hand  tools,  piping,  steam  and  air  hose,  fuel,  oil, 
waste,  caisson  shafts,  ladders,  etc.,  any  salvage  on  same  at  the  com- 
pletion of  the  work  to  be  credited  to  the  cost  of  the  work. 

(h)  The  cost  of  running  the  camp  in  excess  of  receipts  from  same. 

(i)  The  expenses  of  the  local  office  on  the  work,  of  the  Contractor, 
including  telegrams,  telephones,  express,  postage,  etc. 

(j)  The  cost  of  the  necessary  liability  insurance  to  protect  both 
the  Company  and  the  Contractor  from  loss  by  reason  of  damages 
to,  or  injuries  sustained  by,  the  public  or  workmen  while  engaged 
on  the  work,  and  costs  of  all  damages  in  excess  of  liability  insurance. 

(k)  The  cost  of  any  legal  expenses  and  the  rental  of  any  property 
necessary  for  the  prosecution  of  the  work. 

FORM  46. — Building  Agreement — Percentage  Basis.     (Continued.) 


248  ACCOUNTING  FOR  CONTRACTORS 

5. — The  Contractor  will  furnish  without  charge,  other  than  the 
commission  or  fee  herein  provided  for,  its  business  system,  its  engi- 
neering skill  and  experience,  its  patent  methods  and  patent  rights 
in  its  appliances,  its  skilled  organization,  and  generally,  its  ability 
to  equip  the  work  with  efficient  plant,  and  to  organize  the  job  with 
men  experienced  in  this  class  of  work  and  to  construct,  expeditiously 
and  successfully,  work  of  this  nature.  The  Contractor  will  also 
furnish  without  additional  charge  the  heavier  items  of  plant  required 
in  connection  with  the  work,  such  plant  consisting  of  air  compressors, 
air  locks,  receiver  and  cooler,  derricks,  hoisting  engines,  concrete 
mixers,  caisson  buckets  and  boilers  (State  specific  items). 

6. — It  is  understood  and  agreed  that  the  Contractor  shall  purchase, 
on  account  of  the  Company,  all  supplies  and  materials,  etc.,  required 
in  connection  with  the  work,  except  such  as  the  Company  may  wish 
to  purchase  itself,  shall  duly  approve  bills  for  same  for  payment, 
and  shall  then  forward  them  to  the  Company  for  payment,  and  the 
Company  agrees  that  it  will  make  payment  for  such  bills  direct  to 
the  individuals  or  firms  from  which  the  materials  or  supplies  are 
purchased.  Expenditures  made  by  the  Contractor  on  account  of 
the  work  shall  be  reimbursed  as  follows:  On  the  first  (1st)  and 
fifteenth  (15th)  days  of  each  month,  the  Contractor  shall  furnish 
the  Company  a  statement  of  the  expenditures  made  by  it  during  the 
preceding  two  weeks'  period  on  account  of  the  work,  rendering  proper 
vouchers  therefor,  and  the  Company  agrees  that  within  five  (5)  days 
of  the  receipt  of  such  statement  from  the  Contractor,  it  will  pay  the 
Contractor  the  amount  of  such  statements.  The  Company  further 
agrees  that  between  the  first  (1st)  and  fifth  (5th)  days  of  each  month 
it  will  pay  or  cause  to  be  paid  to  the  Contractor,  on  account  of  the 
commission  or  fee  herein  agreed  upon,  one-half  of  the  amount  due 
the  Contractor,  as  commission  or  fee  for  work  done  by  it  during  the 
preceding  month,  and  will  pay  or  cause  to  be  paid  within  thirty  (30) 
days  after  the  completion  of  the  work,  the  balance  of  the  fee  or  com- 
mission due  to  the  Contractor. 

7. — The  Contractor  shall  afford  sufficient  facilities  to  the  author- 
ized representatives  of  the  Company  for  the  inspection  of  said  work 
and  materials. 

FORM  46. — Building  Agreement — Percentage  Basis.     (Continued.) 


.\rrK.\nrx  240 


8. — Should  the  Contractor  at  any  time  during  the  progress  of  the 
work  refuse  or  neglect  to  supply  a  sufficiency  of  mutt-rials  of  proper 
quality,  or  of  competent  workmen,  or  cause  any  unreasonable  neglect 
or  suspension  of  work,  or  fail  or  refuse  to  comply  with  any  of  the 
articles  of  this  agreement,  the  Company  shall  be  at  liberty,  after  giv- 
ing ten  (10)  days'  written  notice  to  the  Contractor,  to  terminate 
this  contract,  and  in  that  event,  the  Company  shall  pay  to  the  Con- 
tractor the  cost  of  the  work  as  defined  in  Par.  4,  plus  its  commission 
thereon.  Upon  such  payments  being  made  by  the  Company  to 
the  Contractor,  this  contract  shall  thereupon  be  terminated. 

9. — The  Contractor  agrees  to  take  out  and  maintain  at  all  times 
during  the  course  of  said  work  liability  insurance  in  amounts  to  be 
approved  by  the  Company,  to  protect  said  Company  and  Con- 
tractor from  loss  by  reason  of  damage  to,  or  injuries  sustained  by, 
the  public,  or  workmen  while  engaged  on  the  work. 

10. — The  conditions  of  this  contract  shall  be  binding  on  the  succes- 
sors and  assigns  of  the  parties  hereto,  but  no  assignment  hereof  shall 
be  made  nor  sub-contract  let  by  the  Contractor  without  the  written 
consent  of  the  Company. 

11. — The    Company   shall   furnish   the   Contractor   free  of  charge 
such  permits  as  may  be  required  for  the  prosecution  of  the  work. 
IN  WITNESS  WHEREOF,  the  said  parties  have  hereunto  set 
their  hands  and  seals  as  of  the  day  and  year  first  above  written. 

THE (Seal) 

Witness: 


By 

(Company) 


THE (Seal) 

Witness: 


By 

(Contractor) 


FORM  46. — Building  Agreement — Percentage  Basis.     (Concluded.) 


INDEX 


Abandoned  contract,  227 
Advances,  recording,  123 
control  account,  108 
Agent  and  principal,  235 
Agreement  "contract,"  238 
Architectural  and  Engineering  divi- 
sion, 158 
Assumpsit,  236 


B 


Balance  Sheet,  138 
Bank  loans  payable,  112 
Bid  sheets,  223 
Bill  of  material,  184 
Bonus  for  Cost  saving,  29 

or  penalty  "Fixed  fee,"  151 


Capital  stock  account,  118 
Car  Card,  187 
Cash  analysis,  34 

in  bank,  104 

and  ledger  control,  172 

record,  124 

Change  of  rate  slip,  195 
Classification  of  field  accounts,  161 
Collection  bills,  18 
Consideration,  234 
Consolidated  journal  entry,  72 
Construction  cost  record,  177 

one    item    each    month    "con- 
tracts," 61 

Contract  cost  account,  10 
control,  109 

and  jobbing  income,  121 

labor  and  expense,  74 

obligation,  233 


Control  balances,  proof  of,  129 
Cost  to  finish,  94 

and  income  details,  74 
ledger  "jobbing,"  66 
Cumulative  classified  unit  ,-,,<{,  124, 

148 

contract  ledger,  42,  122 
monthly  contract  cost  and    in- 
come, 38 
Customers'    account,     lump     sum, 

45 

other  than  lump  sum,  47 
collection  schedule,  92 
monthly  statement,  130 


Daily  bank  balance,  126,  135 

checking  list,  194 
Damages,  recovery  of,  236 
Debit  memo,  184 
Deductions  and  cancellations,  12 
Deferred  contract  cost,  10 

income,  6 

Deposit  with  bid,  229 
Direct  expense,  cost,  121 
Disbursing  agents'  forecast,  23 

fund,  22 

Discharge  check,  196 
Dividends  payable,  113 
Duplicate  invoices,  78 


E 


Earned  contract  sales  control,  1 16 
Element  of  enforceability,  232 
Employees'  badge  number,  207 

history  card,  193 
Employment  report,  193 

slip,  195 


251 


252 


INDEX 


Equipment,  75 

control,  213 

files,  86 

idle  and  working,  214 
Estimate  box,  224 

compilation  of,  219 
Expense,  administrative,  6 

contracts,  64 

selling,  6 
Extra  orders,  11 

how  paid,  12 


Failure  in  performance,  224 
Field  accounting  control,  170 

contractors  cost  and  reimburse- 
ment, 23 

force-compensation,  21 

ledger  accounts,  206 
Figure  analysis  book  ruling,  59 
Field  contractors'  office  force,  154 

orders,  182 

pay  lists,  205 

routine,  199 

stationary,  30 
Filing  contract  agreements,  86 

creditors'  invoices,  86 

purchase  orders,  86 

reference,  50 

store  room  orders,  86 

time  and  expense  sheets,  87 

transfer  tickets,  86 
Financial  forecast,  137 
Fixed  fee,  basis,  17 
Foremen,  duties,  83 

report  of  material  received  and 

laid,  62 

Freight  charges,  195 
Funds,  capital,  225 

current,  225 

foremen,  65 
Furniture  and  fixtures,  75,  106 


G 


General  contractor,  9 

expense  analysis  record,  123 


General  expense  control,  110 

distribution,  67 

statement,  141 
instructions  to  bidders,  227 
journal,  124 
ledger,  125 

accounts,  103 

source  of  items,  31 


In-and-out  rack,  212 
Income  accrued,  98 
Index  cost  and  income,  58 
Information  for  contractor,  2 
Inspection  certificate,  188 
Insurance,  fire,  construction  report, 

160 
Interest  accrued,  payable,  113 

receivable,  108 
Inventory  adjustments,  26 
Invoices,  125 

original,  78 

how  posted,  78 

and  payroll  register,  174 

receipt  of,  78 


Jobbing  cost  accrued,  109 
items,  75 

labor  and  expense,  74 
sources,  66 
labor  and  expense  clearing 

entry,  67 
ledger,  123 
sales,  75,  117 
work  bills,  67 
Journal  form,  32 

closing  entries,  132 
monthly  summary,  61 


Labor  charges  to  contract,  64,  121 
and  expense  contracts,  clearing 

entry,  65 
Liability,  contract,  16 


INDEX 


253 


Loose,  bank  checks,  49 

Lump  sum  contract,  amount  due,  13 

method  of  record,  11 

profit,  13 


M 


Materials  charged  to  contracts,  63, 
75,  121 

credit  to  contracts,  63 

deliveries,  50 

inventory,  each  contract,  44 

laid,  each  contract,  41 

market  price,  6 

receipt  of,  78 

surplus,  6 

transfers  between  contracts,  61 
Mortgages  receivable,  105 

N 

Notes  payable,  112 

receivable,  105 

discounted,  112 
Notice  of  bids,  223 

of  job  taken,  19 
Numbering  accounts,  78 

O 

Offer  and  acceptance,  233 
Overhead  cost,  74,  121 

distribution  basis,  99 
Owner's  cashier,  156 

comptroller,  155 

field  staff,  154 

report,  monthly,  159,  202 


Pay  receipt  and  time  card,  192,  208 
Payable  ledger,  accounts,  122 

control,  111 
Payroll,  audit,  209 
envelope,  196 
and  expense  account,  107 

local  and  foreign,  125 
form,  189 


Payroll,  money  denomination,  209 

recapitulation,  207 
Penalties,  5 

Plans  and  specifications,  4,  218 
Plant  capacity,  221 
equipment,  107 
supplies,  219 
Preparatory  expense,  219 
Prevention  of  omissions,  220 
Price  fluctuations,  29 
Profit,  closed  contract  and  jobbing 

work,  96,  144 
curtailment,  27 
estimate,  221 
and   loss  adjustment  account, 

118 

statement,  140 
by  states,  179 
lump  sum  contract,  11 
percentage  and  fixed  fee   con- 
tracts, 96 
Purchase  orders,  77,  125,  186 

completed,  79 
Prices,  record  of,  85 


Quality  of  supplies,  223 
Quantities,  bills  of,  5 
Quantity  surveyor,  4 
Quasi,  contract,  233 
Quotation  form,  185 

R 

Receivable  control  accounts,  104 

ledger  accounts,  122 
Red  figure  credits,  13 

debits,  12 

Remittance  checking,  numerical,  49 
Report  and  schedules,  fiscal,  119 
Requisition,    fixed    fee    and    plant 

rental,  92 
lump  sum,  90 
Reserve  for  bad  debts,  113 

for  depreciation,  furniture  and 

fixtures  and  tools,  116 
plant  equipment,  114 


INDEX 


Reserve  for  donated  working  capital, 

113 

Retention  or  holdback,  49 
Routine  of  system,  101 


S 


Sales  earned,  93 
Scope  of  audit,  230 
Standardized  costs,  220 
State  cost  analysis,  54 

segregation  symbols,  55 
Stock  and  bond  investment  account, 

105 

Store  room  control,  75,  82 
inventory,  106,  131 
ledger,  122 

account,  81 
order  form,  82 
issuance  of,  83 
and  transfer  ticket  analy- 
sis, 69 

debit  and  credit,  68 
Sub-contract  cost,  16,  79 
liability,  198 
payment,  80 
record,  183 
release,  197 
requisition,  80 

Supervision  and  profit,  billing,  90 
Supplies,    billed    from    contractor's 

stock,  25 

Surety  bonds,  218 
Surplus  account,  118 
Suspense  account,  107,  204 


Taxes  accrued,  payable,  113 

state  schedule,  53 
Time  checking  sheet,  191 


Time  limit,  13 

and  material  work  profits,  15 

recording,  190 

Timekeepers'  daily  distribution,  194 
Trading  account,  118 
Tool  account,  106 

inventory,  217 
Traveling  expense  form,  88 
Treasury  stock  account,  107 


U 


Unbilled  cost  analysis,  73 

inventory,  131 

Unearned  contract  sales,  71,  117 
Unfinished  contract  schedule,  show- 
ing profits  taken  and  fore- 
cast to  complete,  50,  142 
Unissued  capital  stock  account,  111 
Unit  basis  average,  168 

billing,  19 

Unpaid  wage  schedules,  208 
Upset  limit  profit,  28 
Upset  price  ,  14 


Value  of  unfinished  work,  16 
Vouchers  for  jobbing  work,  20 
Vendors  invoices,  distribution,  59 
Voucher  numbering,  50 

W 

Waiting  material  expense,  6 
Weekly  labor  distribution,  189 

payroll  and  expense  summary, 

84 

Weighting  the  work  completed,  158 
Workmen's  compensation  and  public 
liability      insurance      pre- 
mium, 87 


CCT  a  o 


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